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Investors Are Optimistic, but More Conservative, Franklin Templeton Finds

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Consider it more of the same—investors are optimistic, yet struggle with re-entering the market.

According to a new survey from Franklin Templeton, nearly two-thirds of investors believe the U.S. stock market will be up in 2013, yet “a lingering bias toward risk avoidance continues to impact their willingness to invest more aggressively.”  In fact, despite a fourth consecutive year of positive returns from the S&P 500 Index, 69% of U.S. investors plan to pursue a more conservative strategy or make no changes to their investments this year.

The mutual fund giant’s 2013 Global Investor Sentiment Survey polled 9,518 investors in 19 countries across Asia Pacific, Europe and the Americas, including 501 in the U.S., on their current attitudes toward investing and their expectations for 2013 and the decade ahead.

“Despite investors’ overall positive outlook, it appears that avoiding loss, rather than achieving higher returns, is still a top priority,” Greg Johnson, president and chief executive officer of Franklin Templeton Investments, said in a statement. “Clearly, the market volatility over the past five years has reinforced a preference among investors for capital retention over investment gains. As seen in recent years, this risk avoidance has led many investors to remain on the sidelines, missing opportunities. Working with a financial advisor can be the best resource for evaluating all sides of the risk equation.”

Contributing to investor risk aversion is an erroneous perception of market performance by nearly a third (31%) of American investors who incorrectly believe the U.S. stock market was flat or down last year. In reality, the S&P 500 Index was up 16% in 2012.

Uncertainty about the markets is causing some investors to avoid stocks altogether, the survey found, with 37% responding that they think they can meet their long-term investment goals without investing in stocks, even though stocks have outperformed bonds, gold and cash over the long term. Additionally, 43% report that they are skeptical or pessimistic about the U.S. stock market.

Investors cited concerns about government fiscal policy and the state of the global economy as the most common reasons for their reluctance to invest in 2013.

In several instances, responses from younger investors notably diverged from older counterparts.

More than half (57%) do not see stocks as essential to meeting their long-term investment goals—the highest percentage among all age groups—and younger investors have a 14% smaller allocation to stocks than their older counterparts. Younger investors were also more likely to be conservative in 2013.

Younger investors do, however, show a greater willingness to invest abroad going forward, planning to invest only two-thirds of their assets in the U.S. this year—a smaller amount than other age groups.

While survey respondents outside the United States identified Asia as the region most likely to provide superior returns, a majority of U.S. investors remain bullish on their home market. More than half (54%) think the United States will offer the best equity investment opportunities in 2013. On average, U.S. investors said they currently allocated 78% of their investments to the Unites States, while more than a third (39%) of respondents report that they have all of their assets in U.S. investments.

Looking forward, U.S. investors don’t appear to have a big appetite for more global exposure. Eighty-seven percent say they plan to keep at least half of their assets at home over the next 10 years. The top two concerns about investing outside the U.S. were that foreign markets were perceived as riskier, and that investors didn’t feel they knew enough about foreign markets.


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