U.S. investors tend to prefer playing it safe when managing their finances, but American adults who use an advisor have higher average risk tolerance than those who don’t, according to the latest findings from Northwestern Mutual’s 2019 Planning & Progress Study.
American adults 18 and older who worked with an advisor reported an average risk tolerance of 5.2 on a scale of 1 to 10, while those without advisors had an average risk tolerance of just 4.6, the company said Wednesday.
But advisors might not be so thrilled to learn that U.S. adults who considered themselves “highly disciplined planners” — defined as investors who know their exact goals, have developed specific plans to meet them and rarely deviate from those plans — reported an average risk tolerance even higher than those with advisors: 5.3, according to Northwestern Mutual.
When asked about their likelihood to take calculated risks with their finances, 72% of U.S. adults surveyed reported they were more comfortable reducing risk to ensure the safety and stability of their savings and investments, even if it meant the potential for lower returns, the company said.
The study found that the average American’s “financial risk tolerance” — defined as the comfort level with taking financial risks in order to seek financial returns — was 4.9 out of 10 (with 1 being “very conservative” and 10 being “very aggressive”).
Significantly more respondents fell on the risk-averse end of the scale, with 30% in the 1-3 low-tolerance range compared with just 14% in the 8-10 range, according to the study.