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.
“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.