Investors Saying One Thing, Doing Another

October 19, 2010 ( - An MFS Investment Management survey found misperceptions regarding asset allocation and retirement readiness.

Fifty-four percent of respondents said they are more concerned than ever about being able to retire as planned and 45% agree or strongly agree with the statement that “since the downturn, I’ve lowered my expectations about what life will be like in retirement.” 

Accompanying this unease, investors do not have a high tolerance for risky investments in the current economic atmosphere; three times as many respondents said that their risk tolerance has decreased (43%) as those who said it increased (14%).  Whereas before the downturn, investors were primarily looking to make money; now the popular concern is to not lose more money – 36% say their investment objective is protecting principal/not losing money, versus 14% before the economic downturn. Before the downturn 50% were generally willing to take substantial risk for substantial returns; today, it’s 23%. 

Despite these abundant concerns, the majority of investors are not doing enough to remedy the situation. According to the survey, only 37% have rebalanced their portfolio, (44% of advised investors have rebalanced).  Sixty-eight percent claim to be making decisions the way they want (on their own or with some minimal input from an adviser), yet more than 60% are less than ‘very’ confident that their assets are appropriately allocated.     

Bill Finnegan, director of Global Retail Marketing for MFS said, “less than four in ten [investors] have rebalanced their portfolios since the downturn – this type of behavior speaks to a need for many investors to be working with a financial adviser to develop a disciplined asset allocation strategy.”    

A general consensus on the optimal places to invest is also nonexistent.  Forty percent of investors surveyed agree strongly/somewhat that now is a great time to invest in the stock market (25% disagree strongly/somewhat), and 38% disagree strongly/somewhat that government bonds are the best place to put their money right now.    

When asked what action they were most likely to take to increase their chance of meeting their retirement goal, one third said they would put off retirement. Less than one fifth are willing to increase contributions to a tax deferred retirement account and even fewer (15%) would choose to save more outside of a tax deferred retirement account. Only 4% said they would shift their portfolio to more high risk holdings such as equities or equity mutual funds.     

“Advisers have an opportunity to remind investors about the power of compounding dividend yields over time,” said James Swanson, MFS Chief Investment Strategist. “Many investors focus on stock price appreciation, however, they should remember that approximately half of investors’ long term total returns from equities are driven by compounding dividends over time.”  

The survey questioned people with at least $100,000 to invest.   

Nicole Bliman