Investors Seek Protection from Loss

A recent study found individuals with $200,000 or more in investable assets said market volatility has motivated a desire for a balanced investment approach.

According to the “Allianz Life 2013 Investor Market Perceptions Study,” from the Allianz Life Insurance Company of North America, the majority of Americans ages 25 and older with more than $200,000 in investable assets are seeking protection from losses as they accumulate assets for retirement. Almost all (95%) respondents would like a financial product with no potential loss, or at least some level of protection from loss rather than one with unlimited potential growth but also unlimited potential loss. More than three-quarters (76%) would prefer a product that offers a balance of potential growth (up to 10%) with a level of protection that shelters them from up to 10% of losses.

Despite a gain of more than 1,000 points in the S&P 500 Index between March 2009 and August 2013, investors are hesitant to put money at market risk. Nearly $8 trillion of investable assets still sits in cash. The study further exposed this hesitancy as more than three-quarters (79%) of respondents said they believe the market will continue to be volatile, and nearly six in 10 (59%) noted market volatility as an economic concern having an effect on their retirement outlook.

“It’s clear that for many investors the trauma caused by the 2008 financial crisis is still being felt and is dampening their willingness to take on risk with their savings,” said Allianz Life Financial Services, LLC President Robert DeChellis, Minneapolis, Minnesota. “Although we’ve seen strong equity markets this year, volatility remains a constant concern. With fixed-income investments offering disappointing returns, there is a strong need for solutions that can provide solid upside potential but also protect against some of the downside risk that is keeping people from participating in the market.”

As they relate to retirement, beliefs that market volatility will continue were consistent across age ranges with at least three-quarters of Generation X/Generation Y (ages 25 to 44, 82%), Baby Boomers (ages 45 to 68, 80%), and older investors (ages 69 and older, 75%) surveyed sharing that opinion. In addition to fears about equity markets, the survey also found these investors are unhappy with returns from less-volatile investments. More than six in 10 (62%) investors said they are challenged to find sufficient yield and/or return in today’s low interest rate environment.

More than one-third of respondents (38%) said market volatility was preventing them from investing their idle cash. Wealthy investors indicated they want to put their money to work with a product that offers a balance of protection and growth.

When asked what they would do with $20,000 in idle cash today, more than six in 10 (63%) said they would invest today in a product with a balance of protection from loss and growth potential. This is three times the number who said they would invest today in a product with high growth potential (20%) or wait for the market to stabilize before investing (11%). This echoes their top priority for retirement planning, as 84% agreed with the statement “you should always have some kind of protection from loss, even if it reduces your potential gains.”

In addition, when asked which financial product was more attractive—one with a 4% return that is guaranteed not to lose value or one with an 8% return, but with the possibility of losing value due to market downturns—70% of respondents chose the 4% product with guarantees. This response rose to 72% for those that indicated they work with a financial professional.

“Although consumers are still nervous about the market, they also want to move idle cash off the sidelines, provided they have some form of safety net. A retirement product offering a balanced approach seems to be the preferred course of action for the current market environment,” said DeChellis.

The study was conducted by Ipsos via their online iSay/Ampario Panel from July 24 to July 29, 2013, with 1,012 panel respondents age 25 or older, possessing investable assets of $200,000 or more, and was commissioned by Allianz Life Insurance Company of North America.