According to the Global Investor Insights Survey from the Natixis Global Asset Management (NGAM) Durable Portfolio Construction Research Center, Americans are generally optimistic, with 53% expecting their financial situations will improve over the next 12 months. Many people (89%) are also confident their current investment strategy has them on pace to meet their retirement savings goals. Most (54%), however, say they have no financial plan, and 45% say they even lack clear financial goals.
Those who do have such a plan estimate they will need 62% of their preretirement income to live in retirement. This is significantly less than the 70% to 80% commonly used for planning purposes.
While the survey found investors may not be saving enough, it also showed they are thinking ahead about potential costs in retirement, including long-term health care. Americans expect they will need five years of long-term care and are confident they will be prepared to meet these costs. Nevertheless, 40% of U.S. investors consider long-term care costs not covered by insurance to be the biggest threat to their financial security in retirement.
Other top financial threats to retirement cited include:
- Significant reduction in retirement savings or investments due to market conditions (36%);
- Insufficient proceeds from a defined contribution (DC) plan (27%);
- Unemployment (22%);
- Physical disability that would prevent working (21%);
- Insufficient proceeds from their pension or defined benefit (DB) plan (20%);
- Cost of college education for their children (19%);
- Insufficient proceeds from sale of primary residence (16%);
- Cost of caring for children/grandchildren (16%); and
- Cost of caring for elderly family members (15%).
If their retirement funds fall short and they are incapable of supporting themselves, 40% of investors said they will rely on family members to fill the gap, and 38% will look to government programs. Nineteen percent said they would rely on post-retirement work.
Worried About Larger Risks
Investors are growing increasingly concerned about the political and macroeconomic landscape and how it affects their investments, according to the survey. Nearly all (94%) investors say they are anxious about the federal government’s financial situation, with 57% saying they are “very concerned.” Ninety-two percent are concerned about the level of unemployment, and 91% are concerned about U.S. political issues, including 45% who are “very concerned.” In addition, the majority of investors (78%) are anxious about the possibility of a natural disaster. Most investors also worry about the possibility of terrorism (88%) and war (82%).
Fortunately, investors remain focused on understanding the potential risk in their portfolios. Eighty percent believe they understand risk, and 56% say they understand it “fairly well.” Nearly all (86%) pay attention to the overall risk in their portfolios, and 82% actively try to measure the risk of their investments.
“It’s encouraging to see a strong focus on risk,” said John T. Hailer, CEO of Natixis Global Asset Management in the Americas and Asia. “We know from recent history that when investors are focused on growing assets without understanding the risks involved, it’s a recipe for disaster. Advisers and their clients have a chance this time to change the script by putting risk first in every investment decision.”
Safety Over Performance
Most investors (83%) said they strive for a balance between risk and return when making investment decisions, but 65% concede they sometimes cannot decide between pursuing return and simply preserving capital. If forced to choose, most investors (73%) would take safety over performance.
“This is particularly an issue for investors who are nearing retirement because interest rates on their savings accounts aren’t generating enough income and they are reluctant to invest because volatility in the market presents more risk than they can bear,” Hailer said.
These competing priorities are reflected in investors’ planned allocation adjustments in the coming year. Many plan to increase their allocations to defensive assets such as cash (36% plan to add), gold and other precious metals (28%) and real estate (28%). Some investors show a renewed appetite for growth. Twenty-eight percent plan to increase their weightings to U.S. stocks in the next 12 months; 22% expect to add to their weighting in alternative mutual funds; and 20% plan to increase their exposure to both emerging market stocks and private equity.
Investors Examining Alternative Investments
The survey found 76% of investors are interested in products unrelated to the performance of the broader markets, and most investors (61%) do not believe the traditional equities/bond approach to portfolio allocation is the best way to pursue returns and manage investments.
Seventy-two percent of investors said they would consider alternative investments if their adviser recommended them, and 74% said advisers are increasingly discussing alternatives with them. This latter figure represents a sizable increase from the 2011 survey, when 19% of investors said advisers discussed alternatives with them, and from 2012, when 35% said the same.
“Ultimately, investors need the help of their financial advisers more than ever to assist in creating a portfolio that will generate income while minimizing risk,” said Hailer.
Conducted in July by CoreData Research, on behalf of NGAM, more than 750 investors in the U.S. were surveyed, as well as more than 5,650 investors in 14 countries from Asia, Europe, the Americas, the Middle East and the U.K. More information can be found here.