Volatility and Knowledge Gaps Hold Investors Back From Pursuing New
Opportunities and Responding to Inflation Risks
NEW YORK--(BUSINESS WIRE)--
Despite rising concerns about meeting investment goals, most investors
are “stuck in place” with current portfolio allocations, according to
findings released today from the latest “Barometer” survey of investors
and advisors conducted by BlackRock (NYSE: BLK).
Only around one in 10 investors is making portfolio adjustments, as the
results suggest uncertainty in the face of volatility is battling
optimism about the future direction of the market.
Retirement: Reshaping Expectations, Understanding Longevity
While trying to manage the challenges of uncertain and volatile markets,
many of the investors surveyed are also grappling with the profound
financial management challenges of retirement planning.
Nearly half of investors – 46 percent – say they are considering a later
retirement than they initially planned, up from 30 percent a year ago.
Their advisors, polled in a separate survey, point to concerns about
longevity of savings, severe loss of portfolio, and market volatility as
the top three factors affecting retirement timing.
Six of 10 advisors agree that clients are lowering their expectations
for the lifestyle they will have when retired, and 83 percent indicate
that clients are generally planning on working longer and retiring later.
“Living longer is a wonderful prospect, but for many investors the
notion only heightens concern about whether their money will last,” said
Frank Porcelli, head of BlackRock’s U.S. Retail Business. “But in fact,
longevity gives investors greater ability to ride out market cycles, use
a broader range of investments, and keep their money working hard for
them over time.”
In addition to achieving their retirement goals, only around half of
respondents felt prepared when it comes to planning for the education of
a child or other dependent, considerably below their confidence level
for other investment objectives.
Investors Are Optimistic, Yet Cautious in Face of Market Uncertainty
While concerns about meeting these investment goals and optimism about
the future direction of the market would suggest a more active posture
in adjusting allocations, the survey results suggest that many investors
are unclear about what specific investment directions make most sense in
an uncertain and volatile market environment.
Of those surveyed, 62 percent of investors said they were optimistic
about the market’s performance over the next six months. Yet when asked
to describe today’s environment, investors are most likely (57 percent)
to characterize conditions as “uncertain,” and only 15 percent described
the markets as full of opportunity.
As a result, investors are holding fast with their current portfolio
allocations, with nearly half– 46 percent –are making no changes. The
percentage of investors adjusting portfolios has dipped from 21 six
months ago to 11 percent today.
Investors also indicate that they are unwilling to take on risk, with
just 11 percent doing so in the face of concern about market
fundamentals and the potential impact on investment performance. Nearly
nine of 10 – 91 percent – of investors said that market conditions are
among the three biggest risks investors now face, up from 79 percent in
2011’s third quarter. Similarly, 59 percent pointed to the “impact of
unforeseen global or domestic economic events,” and 69 percent to
“market volatility.”
“Uncertainty About Where to Invest” Ranks as #1 Reason For Sitting on
Cash
Investors are uncertain not just about the markets generally, but also
about how specifically to deploy their money. The number one reason
investors are holding onto cash, according to the survey, is
“uncertainty about where to invest” followed by a belief that it’s a
poor investing environment and fear of losing money.
“Uncertainty is often a crippling factor when it comes to investing and
all too often, when uncertain, investors do nothing at all,” Mr.
Porcelli commented. “However, many investors don’t realize that when you
factor in inflation, staying in cash can lead to a deccumulation
of assets rather than accumulation of assets over time.”
Volatility, Knowledge Gaps Hold Back Pursuit of Opportunities
In
Income and Alternatives
The poll results suggest that specifically this uncertainty, compounded
by knowledge gaps, is holding investors back from specific opportunities
in income and alternatives that could help them achieve their investment
goals even in difficult markets.
Just over 60% of respondents said that investing for income has become
“riskier” than it was five years ago and that they have difficultly
evaluating non-domestic income sources.
Most (83%) financial advisors with whom investors work agreed that
“investing for income” makes clients think “bonds,” and about six in 10
indicated that “clients understand very little about investing for
income.” Sixty-one percent of investors agreed that they need to
strengthen their understanding of investing for income.
About four in 10 – 42 percent – of investors who actually are making
portfolio changes are moving to equity income investments, up from 34
percent six months ago. However, equal numbers of investors are moving
into and out of equities overall (30% vs. 36% respectively), emerging
markets (38% vs. 36%) and alternative investments (20% vs. 24%).
“Traditional income sources are falling short in today’s environment and
investors seeking income need to look beyond traditional income
sources,” said Mr. Porcelli. “By looking for opportunities across asset
classes and geographies, investors can actually provide a more balanced
approach to income while reducing overall portfolio volatility.”
Meanwhile, with the exercise of generating portfolio return becoming
generally more challenging over the past several years, investors have
also been encouraged to consider a broader spectrum of alternative asset
classes that can provide enhanced portfolio diversification
opportunities.
Yet here too, a combination of concerns about risk and knowledge gaps is
holding investors back. About six of 10 investors say that market
volatility has made them reluctant to consider “nontraditional” asset
classes, and about half say they consider alternatives too “risky,” with
nearly half (45%) believing they are more suitable for sophisticated
investors.
Sixty-five percent agree that more education is needed about
alternatives. Additionally, while a third say their advisor “has never
shown me how alternatives can fit in my portfolio,” of those surveyed
with assets of $2mm or more, 43% indicate receiving introductions to
alternative investments.
As a result, 65 percent of investors without alternative investments
don’t plan to add them over the next 12 months, and 68 percent of those
who do hold the investments don’t plan to change their allocation over
that time. Of those moving into alternatives, 47 percent noted that
there were more opportunities available/easier access.
“Historically, alternative investments have not been a significant
component of a core retail investor’s portfolio, however, growth in
capital markets and financial innovation has changed the traditional
alternative investment paradigm,” said Mr. Porcelli. “As advisors and
investors grow to understand the benefits of portfolio protection and
risk control alternative investments can provide, we anticipate this
asset class to increase in interest over time.”
“The old ways of investing no longer work – and our poll tells us that
investors still need plenty of fundamental support and direction in
adjusting to a new world,” said Mr. Porcelli. “The good news is that
help is available, and new insights and tools are emerging all the time
that offer tangible advantage for investors seeking income,
inflation-combating growth, and solid investment return in a low-yield,
slow-growth world.”
Investors Recognize but Are Not Responding to Inflation Risk
Fifty six percent of advisors and 67 percent of investors said that
while they consider the impact of inflation on their savings, they are
not focused on it. However, most advisors (87 percent) anticipate
inflation will increase over time.
“Inflation risk is the danger that an investor’s portfolio returns will
not keep pace with inflation, eroding the purchasing power of income
over time,” added Mr. Porcelli. “Inflation is harder to notice on
a one-, two-, or three-year basis, but our research has shown that
inflation of just 3 percent can reduce the purchasing power of a
portfolio by 50 percent over a 25-year time frame.”
*BlackRock’s “Barometer” research is conducted over the Internet
biannually, in the fall and the spring, with support from research firm
Market Strategies International. For the latest wave of the research,
conducted from April 23 to May 7, 353 investors and 377 financial
advisors were polled. All of the investors surveyed work with financial
advisors, and 93 percent are age 56 or above, reflecting a general focus
on investors in their peak wealth accumulation phase and dealing with
the potential or actual financial management implications of retirement.
All those surveyed had $250K or more in investable assets.
About BlackRock
BlackRock is a leader in investment management, risk management and
advisory services for institutional and retail clients worldwide. At
March 31, 2012, BlackRock’s AUM was $3.684 trillion. BlackRock offers
products that span the risk spectrum to meet clients’ needs, including
active, enhanced and index strategies across markets and asset classes.
Products are offered in a variety of structures including separate
accounts, mutual funds, iShares® (exchange-traded
funds), and other pooled investment vehicles. BlackRock also offers risk
management, advisory and enterprise investment system services to a
broad base of institutional investors through BlackRock Solutions®.
Headquartered in New York City, as of March 31, 2012, the firm has
approximately 9,900 employees in 27 countries and a major presence in
key global markets, including North and South America, Europe, Asia,
Australia, and the Middle East and Africa. For additional information,
please visit the Company's website at www.blackrock.com.
BlackRock
Jessica Greaney, 1-212-810-5498
Jessica.greaney@blackrock.com
Source: BlackRock