Since the financial crisis and “great recession,” U.S. households are less willing to take on more risk and over the past three years they’ve become more conservative, with 58% increasing their savings rate, shifting investments away from stocks and delaying retirement age, according to recent research by the Investment Company Institute.
Sarah Holden, senior director of retirement and investor research at ICI, reminded attendees on Tuesday at the Investment Management Consultant Association’s (IMCA) annual conference in National Harbor, Md., just outside Washington, that the S&P 500 Total Return index fell 55.3% between Oct. 9, 2007 and March 9, 2009. In 2008 alone, she said, the S&P 500 total return index fell 37.0%. “Only in 1931, when the total return on large company stocks fell 43.3%, did that measure perform as poorly on an annual basis,” she said.
U.S. households’ balance sheets suffered as equity and home values fell in tandem, she said. And the more than two-thirds of U.S. households with IRAs and defined contribution plans also saw their accounts drop as well.
Based on data ICI collected between November and December 2010, activity after the financial crisis varied with the age of the respondent. For instance, younger households were more likely to indicate they increased their regular savings, compared with older households. Preretirement and younger retiree households (those aged 50 to 64) were much more likely to shift investments to be more conservative compared with other age groups. And most retirement age changes occurred among preretirement and younger retiree households, those aged 50 to 64.
ICI also studied why mutual fund investors use advisors, and found that of the 44% or 52.3 million U.S. households owning mutual funds, half indicate they use an advisor.
ICI found that the majority of mutual fund owners initially seek professional investment advice during their peak earning and savings years. Of those with an ongoing advisory relationship, ICI found that 40% sought an advisor’s counsel on a specific financial goal, such as saving to pay for retirement or education. Of the “major” reasons respondents with an ongoing advisory relationship said they use an advisor, 74% said they wanted help with asset allocation, while 73% indicated they wanted a financial professional to explain various investment options.
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