The financial crisis has, in fact, had a lasting impact on investors, a Prudential Financial survey of 1,274 Americans shows.
Fifty-eight percent said they have lost faith in the stock market and 44% said they are unlikely to ever again invest in stocks. In addition, many said they are investing more conservatively coming out of the financial crisis. Only 37% said they have aggressive portfolios, down from 46% prior to the recession. Forty percent said they have a conservative portfolio, up from 33% before the recession.
Nonetheless, a majority is worried about making up for losses incurred due to the financial crisis, and 72% agree that they need to think differently about saving and planning for retirement.
Sixty-one percent said the principles of investment diversification and asset allocation have changed, and 73% said their balances are not large enough to make up for the losses they have experienced over the past few years. Nonetheless, 60% are looking for guarantees to protect their financial future.
“These findings are consistent with what we’re seeing in the marketplace,” said Judy Rice, president of Prudential Investments. “Mutual fund investors are beginning to behave much more like institutional investor and are just as focused on managing risks as they are on generating good returns. As a result, they are looking at real assets and market neutral and fixed income products to protect against the threat of inflation and market volatility.”
Given this changed appetite for risk, annuities and other guaranteed income products clearly could have greater appeal, said Stephen Pelletier, president of Prudential Annuities. “Americans clearly recognize the need for new approaches to retirement planning, with almost seven in 10 saying guaranteed lifetime income products are appealing. The findings are consistent with the trend we are seeing toward many investors including annuities in their portfolios to provide a guaranteed floor for their retirement income.”
While 70% of the respondents said they have taken steps to improve their financial situation by saving more or reallocating their investments, the majority have moved their money to more conservative investments—creating a new risk that they might fall short on achieving their retirement goals.
“It’s clear that the financial crisis has driven fundamental changes in the way Americans are saving for retirement, with millions of Americans perhaps at even greater risk of having insufficient income for a secure retirement,” said Christine Marcks, president of Prudential Retirement. “One solution may be to include guaranteed income products within workplace retirement plans, which can be structured to provide downside protection as well as the opportunity for growth. Also, despite the fact that we are seeing some positive signs—such as increasing contributions to 401(k) and other retirement savings vehicles—the lower interest rate environment and more conservative investing will require Americans to save even more if they are to achieve their retirement goals.”