Although three of four investors are affected by their emotions to a moderate or high degree, just over a third (35%) believe emotions impact their investment decisions, according to a news release. However, Prudential said, behavioral risk affects nearly all investors.
The survey found that 80% of respondents registered high or moderate degrees of regret, and 71% high or moderate degrees of fear, which can influence financial decisions. For example, 86% of those registering a high degree of susceptibility (those influenced by the advice of friends or relatives) would take some or all money out of the market if confronted with significant market losses. Similarly, 78% of those scoring high on fear would do the same.
Three in four (75%) investors would consider an investment product that could provide various guarantees. With the benefit of these guarantees, most (85%) would be likely to weather out short-term losses.
The “Behavioral Risk in The Retirement Red Zone” research explored the link between emotions and financial decisionmaking in investors approaching or in The Retirement Red Zone – the critical investment window five years before and after retirement, according to Prudential.
“The role emotions play in investment and retirement decisions is being recognized as an important factor in creating a successful retirement,” said David Odenath, president of Prudential Annuities, in the news release. “For Americans in the Retirement Red Zone, understanding the emotions that can influence their behavior can ultimately help mitigate the effects of behavioral risk.’
Focus groups conducted in conjunction with the survey indicated that many investors Prudential classifies as being in the Retirement Red Zone would prefer to rely on their financial professional to better understand the role emotions play in their financial decisionmaking.
Also as part of the research, Prudential partnered with experts in the field of behavioral finance at the University of Connecticut to develop a tool to determine an investor’s Retirement Emotion Quotient (EQ) and found that three of four investors (76%) rate moderate or high on their Retirement EQ score. Seventy-two percent of men and 80% of women have moderate or high EQ scores; however, only one-third of Retirement Red Zone investors (35%) feel emotions have an impact on their decisions.
To download a copy of the report, visit www.retirementredzone.com.