WASHINGTON—While investors have overwhelmingly stayed the course and remained invested in mutual funds following the financial crises of 1987, 1990, 2000 and 2008, the latest credit crises has greatly reduced investors’ risk tolerance, said Investment Company Institute Chairman Edward C. Bernard in his opening keynote address to the ICI’s General Membership Meeting on Wednesday.
“The financial meltdown of 2007 and 2008 created sharp setbacks for investors,” said Bernard, who is also vice chairman of T. Rowe Price. “Across a wide spectrum of ages, investors have a reduced appetite for risk. Fewer investors say they’ll take above-average or substantial risk in exchange for comparable returns. Among households owning mutual funds, the share willing to take such risks has fallen by almost one-fifth—from 37% to 30%--since 2008.”
In the past three years, nearly three out of five households have shifted their investments to a more conservative mix and delayed the age at which they will retire, Bernard noted. And the data bears that out, he said. Equity fund flows have been weak, while bond flows “have been stronger than expected.”
“That trend toward caution underscores the heavy obligation that we face as an industry to help all Americans save, invest and manage toward their financial goals. It’s a big challenge. We need to remind investors that they need to invest their money in assets with the opportunity to grow faster than inflation. We must reach out to investors—and to those who should be investing to meet their future financial needs,” Bernard said. “We need to help that younger generation whipsawed by two bear markets to understand the power of long-term investing to overcome short-term setbacks and to outrun inflation over time.”