It’s a conflicted time for American investors who are both worried about their preparedness for retirement but also terrifically gun shy about taking on new risk to help pay for it, according to a new study of 702 U.S. residents who range in age from 18 to 67.
The survey found that 71% of respondents said volatility has eroded their confidence in the markets, while nearly 80% (77%) said they are concerned about outliving their assets when they are older. Rounding out this cautionary picture, 58% said they will sacrifice investment returns in order to minimum risk and 57% said they won’t be reducing the cash holdings in their portfolio.
“Certainly we are hearing from individual investors that they are very concerned about their financial security yet at the same time they’re only willing to take on certain investment risk,” said David Giunta, president and CEO of the U.S. distribution arm of Natixis Global Asset Management, which commissioned the survey. Natixis ovesees $706 billion in assets.
To break through this logjam, the global asset management firm is proposing that investors increase their allocations to alternative investments. In the survey, the firm found both openness to the concept of alternatives combined with a desire to know more about them among investors. Specifically, 64% of respondents said they’d need to know more about alternative investments before investing in them
The U.S. research was part of a larger global survey that covered 14 developed countries. Overall, it found that investors are willing to re-evaluate traditional asset allocations.Three-quarters (75%) say the traditional portfolio allocation with 60% in stocks and 40% in bonds is no longer the best way to pursue returns and manage risk.
Investors understand they need to re-engage in the markets and pursue asset growth, Natixis reported, and they are willing to look to new asset allocation and diversification strategies to address their fears. Nearly seven in 10 investors (69%) agree that it is time to replace traditional techniques with new approaches.
The survey found that four in five respondents (85%) say it is important to have different types of investments in their portfolio, including 54% who say it is “very” important. In fact, nearly half (46%) say they regularly consider whether an investment will generate returns that are uncorrelated to the markets.
“Building a durable portfolio is not only about capital allocation, it’s also about risk allocation,” John T. Hailer, CEO of the Americas and Asia division for Natixis, said in a statement. “Investors need to start by looking at potential risks embedded in their existing equity and fixed income investments, and then consider strategies such as alternative investments – including hedging strategies, commodities, currencies and managed futures – to control volatility while still having the ability to achieve their goals for returns.”
The survey found that financial advisors can play an important role in guiding investors. Half (51%) of investors said they would consider alternative investments for their portfolio if their advisor recommended them. However, only 35% of investors say they have discussed alternatives with their advisor. Although more than half of investors (52%) say they are interested in investment products that are unrelated to the performance of the broader markets, only two in five (39%) currently invest in alternative investments, Natixis found.
One optimistic sign: investors are increasingly willing to engage their advisors, with 62% agreeing that they are more interested in discussing risk with their advisor than ever before, and 59% saying that they are revealing their expectations to their financial advisor more than before, the survey found.
The biggest barrier to participation in alternative investments is a lack of knowledge, according to the company. Nearly seven in 10 (68%) investors say they invest only in products they understand, and 48% say they have little or no understanding of alternative investments. Nearly two-thirds (64%) say they need to learn more about alternatives before they would consider investing in them.
“Market volatility is likely here to stay, and investors need portfolios that can help them achieve their goals whether markets are moving up or down,” Hailer said. “Financial advisors have an important role to play in educating their clients about how to build durable portfolios that can smoothly navigate this risk and volatility, perform in both up and down markets and help investors achieve their goals for retirement.”