Among the Americans who invest in vehicles including CDs, stocks, bonds, and money market accounts, many fear their investment returns may not outpace inflation, according to a nationwide survey released in January by the Simsbury, Connecticut-based The Hartford Financial Services Group, Inc. "In a rising rate environment, which this year very well could be, inflation may be an issue," says Bill Davison, managing director of Hartford Investment Management Company and co-portfolio manager of The Hartford Inflation Plus Fund. "People will need to consider protecting their investments against that."
The Hartford survey, conducted by an independent research firm last December, found that 74% of investors say their current investment returns may not be adequate to meet their investment goals, while (not surprisingly to Davison) 66% of those surveyed who are over age 65 say inflation is a concern. "When people save for retirement, they want to make sure they can buy what they can buy today," he offers. "And it doesn't take a high level of inflation to impact the quality of life." According to Davison, 2% inflation over the next 20 years would decrease the purchasing power of $1,000 to $672. His solution: include Treasury Inflation-Indexed Securities (TIPS) in client portfolios. "We think that inflation protected securities are reflectively a perfect hedge against inflation," he explains. "It's also a good diversifier as it reduces risk."
When shown a description of a fixed income investment option designed to outpace inflation, 77% of survey respondents say they would be likely to invest in that type of investment.
Other Survey Stats:
- Over half of those surveyed had significant concerns about the ability of their investments to keep pace with inflation.
- 66% of Americans over 55 said that inflation was a significant concern, which Davison reports is not surprising given that they have lived through inflationary periods.
- A significant portion of those surveyed said their investments are in fixed income: 56% said that between 1%-50% of their investments are in fixed income, and 40% said they had shifted between 1%-50% of their investments over the past 18 months to fixed income vehicles.
- Despite that shift to fixed income, 76% are still concerned that those investments will not keep pace with inflation.
- Market volatility was also a concern: 45% expressed concern that volatility would deplete invested principal, while 74% are concerned that investment returns may not be adequate to meet their investment goals.
Further information on this study can be found at: http://www.thehartford.com./press/financialnews/2003/1042625587244.html.