The Markets May 12, 2014

More Experienced/Affluent Share Investing Advice

Affluent investors surveyed by Legg Mason identified the decisions they made that have had a positive impact on their investment success.
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The top five decisions were:

  • Changing my spending habits so I could save/invest more;
  • Developing a financial plan;
  • Beginning to work with or increasing the role of my financial adviser;
  • Invested in products other than just stocks and bonds; and
  • Taking a more global approach to investing.

A significant majority (70%) of the investors surveyed believe the investment environment that future generations face will be more difficult than the one investors face now. Those between the ages of 55 and 64 are most likely to make this prediction—82% believe it will be more difficult for future generations. Only 6% expect the future environment to be “easier” while less than one-quarter (24%) believe it will be about the same.

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Asked what counsel they might offer the next generation facing this challenging future, respondents said:

  • Start investing early in life;
  • Make sure you understand what you invest in;
  • Avoid short-term decisions based on emotions;
  • Make a plan and stand by it over time; and
  • Employ a professional adviser.

Only 30% suggested the next generation should be cautious about taking risk.

Even though Legg Mason’s Global Income Survey finds the majority of affluent investors are confident they will have enough money to live the lifestyle they want in retirement (88%) and are confident in their ability to retire at the age they want to (86%), these same investors are also aware of how certain factors could potentially derail their retirement plans. Issues they fear include having an event that consumes their retirement funds, outliving their retirement funds, saving too little, the government reneging on obligations (e.g., Social Security), and a low-interest rate environment.

According to Matthew Schiffman, managing director and head of global marketing at Legg Mason Global Asset Management, recent events such as the financial crisis have made current investors more aware of how retirement savings can be unpredictably and negatively affected. “We encourage financial advisers and investors to take a realistic approach when planning for retirement, which we call ‘realtirement.’ It includes trying to anticipate the unpredictable. For instance, have you planned for your long-term living situation? What if you suddenly need assisted living or even greater care? Are you prepared for that event? We all need to be.”

Among the U.S. investors surveyed, the primary goal of investing is to “provide for my own retirement.” Other goals included:

  • Maintaining my current lifestyle later in life;
  • Protecting my wealth;
  • Growing my wealth; and
  • Generating income for living expenses.

Asked about their progress toward these goals, 41% of those ages 40 through 54 said they were not making progress to “provide for my own retirement”; 46% of those 55 through 64 said they are not making progress toward “maintaining my current lifestyle later in life”; more than four in 10 (42%) said they are not doing very well in their progress toward “protecting my wealth”; and 53% of those 55 through 64 said they were not doing very well toward the goal of “growing my wealth.”

The Legg Mason survey was conducted among 4,320 affluent investors (minimum $200,000 in assets as measured in U.S. dollars) from 20 countries, including the United States. The U.S. survey findings are from among 500 affluent investors. Respondents were surveyed online by Northstar Research Partners, on behalf of Legg Mason, from December 2013 to January 2014.

Data & Research May 12, 2014

Retirement Investors Get More Aggressive

Average investors are showing renewed confidence and have set aggressive investment targets, according to Natixis Global Asset Management, but outlooks for retirement remain depressed.
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The firm recently released its fourth annual Investor Insights Survey, finding that U.S. investors are showing more trust in the investment markets and have set more aggressive investment targets for the year ahead. Natixis researchers say this is a positive sign about the overall health of the economy, but the firm warns that many investors still lack a sound savings and investing plan to help achieve long-term financial goals.

Survey results show investors are beginning to fall into two groups, Natixis says. One is stuck at an impasse between competing desires for growth and stability; the other is at a turning point, ready to reset its expectations and approach to investing.

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“Many investors have set aggressive investment targets, but don’t have a realistic way of reaching them,” says John Hailer, CEO of Natixis Global Asset Management in the Americas and Asia. “Something has to change. The markets have reached new heights, and investors feel generally comfortable about portfolio performance. But without a plan that incorporates individual risk and personal benchmarks, the odds are diminished that investors will meet their goals.”

According to the survey, Americans say they need average annual returns of 9.8% above inflation to meet long-term discretionary, housing and health-care spending needs. This is an ambitious goal that could drive investors to take on more risk than they can handle, Hailer notes.

“With average yearly inflation of 4.2% since 1964, these investors would actually need to earn 14% to meet their needs, surpassing the 10% average annual gain of the Standard & Poor’s [S&P] 500 Index over the past 50 years,” he says.

Other survey results show the typical U.S. investor is still somewhat confused and conflicted about how to approach retirement investing, Natixis says. For example, while more than seven in 10 (71%) investors say asset growth is increasingly a priority over principal-protection, 56% also say they are only willing to take minimal risk to achieve high returns. Additionally, just one-quarter of investors surveyed feel their overall investment knowledge is “very strong.” Even fewer (12%) say they have strong knowledge of alternative investments,which are not correlated to the broader market and are increasingly becoming part of retirement and retail investor portfolios.

“This demonstrates a great opportunity for financial advisers and the industry to help educate investors on realistic expectations and strategies to reach their goals,” Hailer says.

When they do make investment decisions, more than three-quarters (79%) of investors say they simply follow their gut instinct.

“Fifty percent have no clear investment goals and 54% have no financial plan,” Hailer observes. “So it’s not surprising that when asked how they define investing success, some look at asset levels and others look at comfort level, rather than meeting long-term financial goals.”

The two top indicators investors rely on to measure investment performance are the current level of their total assets (50%) and the financial comfort level (49%) currently felt. Less than four in 10 investors (37%) say they consider long-term financial goals in defining investing success—the strategy Natixis says is best for retirement investors.

Other findings in the annual survey show that market volatility has eroded confidence for nearly half of investors (49%), and six in 10 no longer believe traditional asset-allocation strategies that rely solely on a mix of stocks and bonds are the best way to pursue returns.

“Investing today is complicated, and there’s a lot of noise in the market,” Hailer says. “But investors are beginning to understand that market indexes may not be the best benchmark for their personal success. They’re looking for a better strategy to help them stay invested for the long term.”

In what could be a turning point in investor behavior and expectations, Natixis says, 82% of investors are willing to set a target for investment returns that is independent of overall market returns. Americans also seem to be growing more aware of the risks of having too little income to meet their needs in retirement. Their biggest concern observed by Natixis is the uninsured cost of long-term care in old age, which 53% of investors identify as a top risk to their financial security in retirement. This is a substantial increase from 40% in Natixis’ 2013 survey of individual investors.

Asked where they would turn if their retirement funding fell short, 46% of Americans say they will continue to work and 31% would rely on support from family members. Only 19% expect to be able to rely on the government, a reflection that Americans are beginning to accept the reality that they will be responsible for financial security in retirement.

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