Even as global markets strengthen, fueling an intense focus on growth as an investment priority, many investors remain fearful of losses and lack direction about how to move ahead, according to a new survey.
Researchers at Natixis Global Asset Management found that U.S. investors are beginning to fall into two groups. One is stuck at an impasse with competing desires for growth and stability. They and their investment portfolios are at risk of falling short of their financial goals.
The other group is at a turning point, ready to reset their expectations and approach to investing.
“Many investors have set aggressive investment targets, but don’t have a realistic way of reaching them,” John Hailer, chief executive officer of Natixis Global Asset Management in the Americas and Asia, said in a statement.
“Something has to change. The markets have reached new heights and investors feel generally comfortable about portfolio performance. But without a plan that incorporates individual risk and personal benchmarks, the odds are diminished that investors will meet their goals.”
Natixis surveyed 1,050 investors across the U.S. as part of a survey of nearly 6,000 investors in 14 countries.
Pie in the Sky
Respondents said they needed average annual returns of 9.8% above inflation to meet their financial needs, which included providing income in retirement, and housing and health care expenses.
“This is an ambitious goal that could drive investors to take on more risk than they can handle,” Hailer said.
With average yearly inflation of 4.2% since 1964, this means investors would actually need to earn 14% to meet their needs, Natixis pointed out. The S&P 500 index has gained an average 10% annually over the past 50 years.
But while 71% investors said asset growth was increasingly more important than principal protection, 56% said they were willing to take only minimal risk to achieve high yields.
“This demonstrates a great opportunity for financial advisors and the industry to help educate investors on realistic expectations and strategies to reach their goals,” Hailer said.
According to the survey, 76% of investors own only investments they understand well — yet just one-quarter felt their overall investment knowledge was very strong. And a mere 12% had strong knowledge of investments not correlated to the broader market.
When they did make investment decisions, 79% of investors said they simply followed their gut instinct.
“Fifty percent have no clear investment goals, and 54% have no financial plan,” Hailer said. “So it’s not surprising that when asked how they define investing success, some look at asset levels and others look at comfort level rather than meeting long-term financial goals.”