Investors to Stay with Stocks, Latest Vanguard Report Finds

Nearly 90 percent of those surveyed believe it is important to invest in equities in the years leading up to retirement, the latest Vanguard research shows.

A new Vanguard study finds that most American investors continue to view equities as a critical component of long-term investment plans, although they remain wary of risk and possess more modest expectations for future returns, the fund group said today.

The Vanguard study, The Aftermath: Investor Attitudes in the Wake of the 2008-2009 Market Decline, examines the link between the economic crisis of 2008-2009 and the investment decisions made by American households. The study is based on a nationwide survey conducted in late May and early June 2009.

"Despite the public debate on the risks involved in equity investing through 401(k) retirement plans and target-date funds, the survey shows that most investors acknowledge the importance of equities in these types of vehicles," says Stephen Utkus, head of Vanguard Center for Retirement Research and one of the authors of the study.

Some 3,012 American investors, ages 21 to 79, in households with $5,000 or more in savings and investments were part of the study. The key findings are:

  • Many investors believe households should hold some stock market exposure right before and during retirement. Nearly 90% of respondents believe it is important to invest in equities in the years leading up to retirement. Seven in 10 respondents believed that some ongoing equity holdings are necessary during retirement.
  • The majority of investors held steady with their stock holdings. Whether due to inertia or a belief that their portfolios were suitably constructed, six in 10 households made no changes during the market decline. Somewhat surprisingly, while 21% of stock market investors reduced equity holdings and 5% sold all equities during that period, a fairly sizeable group of 17% increased stock exposure. Even among those selling all equities, most respondents plan to resume investing in the stock market.


Analysis of the survey results shows the decision to sell or reduce equity holdings was less related to concerns about heightened market risk than it was to several factors: first- or second-hand experience of a job loss or foreclosure during the crisis, whether the investment was in a taxable account, and the time to a planned retirement.

"The confluence of important economic factors with the market decline quite logically led to a greater sense of insecurity among some individuals," explains John Ameriks, co-author of the study and head of Vanguard Investment Counseling and Research. "But broadly speaking, the study results suggest that investors continue to believe equities are an important part of their portfolios despite the worst financial crisis in several generations."

  • Many investors understand stock market risk and believe it's still worth taking. Nearly three-quarters of respondents (73%) said they knew that significant market declines could occur. In response to a separate question, only 28% said they were completely surprised by the downturn. But while such declines may have been within their expectations, there were conflicting views of the future benefits of stock market investing. About half agreed that the stock market is a more dangerous place to invest than in the past, while half believed that the risks of stocks are worth taking.
  • Respondents believe future equity returns will be well below historic norms. Investors anticipated a median return of 7.5% on stock market investments, well below the 10% to 12% long-term average returns seen historically for the stock market.
  • Retirement may not be permanently impaired by market losses. Only 13% of respondents strongly agreed with the view that their retirement had been permanently impaired by the market decline. Those within 10 years of retirement and concerned about foreclosure and job loss were more worried about delaying retirement. In separate questions on how they would cope with the shortfall, 74% said they would reduce spending, 48% pointed to increasing savings, and 45% said it may be necessary to work longer.


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