Many American investors dodge risk at all costs, while others enthusiastically embrace risky decisions, according to research reported Wednesday by Ameriprise Financial.
Ameriprise said that in a poll of 3,000 people between ages 25 and 70, 73% either avoided risk entirely or carefully weighed risk when making financial decisions.
Survey respondents ranged from millennials with at least $25,000 in investable assets to Gen Xers and baby boomers with at least $100,000 in investable assets.
Against the backdrop of recent market volatility, respondents acknowledged that they could better understand and embrace additional financial risk for the benefit of their portfolios by being more proactive in their financial education and investing strategies.
“Investing for the long term, while also trying to navigate market swings, is one of the biggest challenges facing investors,” Marcy Keckler, Ameriprise’s vice president of financial advice strategy, said in a statement.
“Whether you are an experienced investor or beginning to build your retirement nest egg, having a comprehensive financial plan and understanding how risk factors into your plan can help build financial confidence.”
In recent years, a number of firms have come on the scene to help investors and their advisors assess risk tolerance.
Sydney-based FinaMetrica’s Risk Tolerance System uses a 25-question survey to determine an individual’s personal financial risk tolerance.
California-based Riskalyze offers questionnaires that advisors can use to generate a “risk number” that aligns portfolios with risk preferences. Riskalyze announced Tuesday that it had consolidated its three products into a new platform.
Based on the findings of its survey, Ameriprise described four profiles along a financial risk continuum, from those who avoided risk to those who embraced it:
Risk Avoider (31% of investors surveyed)
Risk avoiders were the most guarded respondents in terms of financial risk-taking, with 89% saying their outlook on risk was “cautious.”
Forty-two percent of respondents in this profile claimed they were unwilling to take risks with their finances, associating risk with loss or uncertainty. Yet many were increasing their exposure to risk unknowingly:
- Many people in this group reported being underinsured
- Many only made investments with guaranteed returns
- Some were storing their savings in cash
- These investors were less likely to conduct the research necessary to help mitigate risk
In their personal lives, risk avoiders were averse to such risks as changing their career or moving far away.
Sixty-one percent of risk avoiders were baby boomers and female.
Risk Mitigator (42% of investors surveyed)
Risk mitigators, although careful about risk, were less so than risk avoiders.
Eighty-nine percent of these investors characterized themselves as willing to take risks after significant research, but like their more cautious counterparts also associated risk with loss or uncertainty in their investment outlook.