Investors Should Not Be Risk Averse in 2013

Investors should remain defensive in 2013 but at the same time not be averse to taking on some risk, according to a Prudential expert.

Quincy Krosby, chief market strategist for Prudential annuities, summed up risk tolerance in 2013 during Prudential Financial’s 2013 Global Economic and Retirement Outlook briefing: This year, it’s just as risky to be out of the market as it is to be in it.

Panelists at the event said they expect market growth this year, both in the U.S. and globally. “I think we’re basically in a bull market,” said Ed Keon, managing director and portfolio manager of Quantitative Management Associates. Keon pointed out that the U.S. market delivered 15% returns in 2012 and has averaged 10% returns over the past few years despite volatilty.

Last year brought a “dichotomy” of weak economies and strong markets, and the factors that drove up the markets in 2012 will likely continue in 2013, said John Praveen, managing director and chief investment strategist at Prudential International Investment Advisers LLC. “Despite weak economies, we had very, very strong markets,” he added. 

In 2012, markets remained strong due to global central bank stimulus and Eurozone stabilization, Praveen said. This year Praveen expects “two-speed” growth—while economic growth is likely to remain weak in the Eurozone, the U.K. and Japan, the emerging economies and U.S. should experience a modest rebound.

Abundant liquidity and low interest rates—combined with additional rate cuts and the expansion of quantitative easing—are likely to boost stocks in 2013, Praveen predicted in Prudential’s Market Matters research paper, “The Global Economy and Markets: The Outlook for 2013.” Further stabilization in the Eurozone should also support equity prices, he added. Praveen said he also expects a modest increase in bond yields during 2013.

During Prudential's event, George Castineiras, senior vice president of Total Retirement Solutions at Prudential, also commented on the retirement space outlook for 2013. In the coming year, advisers who have fiduciary and plan design expertise will particularly be in demand, he said. He also expects customized target-date fund (TDF) strategies to be popular this year.

Late last year, the average retirement savings rate in the country was 3.3%, and about 6,000 of the 10,000 people who retire per day are unprepared, Castineiras said. In addition, he pointed out that 50% of U.S. workers do not have access to an employer-sponsored retirement plan.

Overall, experts said the outlook for the markets and retirement industry remains positive in 2013.