Investors Show Preference To No-Risk/Low-Return


Yet another survey has found that the majority of U.S. investors are not comfortable with risking loss when it comes to their retirement savings. Big whoop, you already know that, right?

Well maybe yes and maybe no.

A new survey from Wells Fargo/Gallup found that 64 percent of investors believe that having a guarantee on their initial investment — even if the growth potential is low — is more important than having high growth potential but with some risk of loss to the money initially put in.

A lot of data folks have arrived at similar findings during the recovery period following the 2008 recession. But this survey was conducted early this year (Feb. 6–16) when the Dow was above 15,000 and other market indicators were positive, making the anti-risk tilt a bit surprising.

Something else is surprising too. The researchers found that today’s anti-risk majority spans multiple demographics, even ones where one might expect to find a preference for, or at least tolerance of, investment risk.

Take the non-retired, for instance. The majority of these investors (59 percent) said they prefer the no-risk/low-return option. Granted, so did the retired investors (78 percent). But the non-retired? That finding flies in the face of general assumptions that many younger working individuals can and do take on more risk, in hopes of greater gain by time retirement comes around. In fact, many financial advisors recommend that working people, especially younger workers, take on more risk, and that’s what many onlookers have been assuming is the trend. But no, the majority of both working and retired in this survey gave thumbs-down to risk.

The pattern held in other categories too. For instance, the majority of younger non-retirees, ages 18–44, (58 percent) said they prefer the no risk/low return option for their retirement savings as did 59 percent of older non-retirees (ages 45 and up). So did the majority of those with portfolios of $100,000 and up (57 percent) as well as those with under $100,000 (72 percent); and men (57 percent) as well as women (72 percent).

Clearly, there were differences in the size of the majorities, but guarantee of retirement principal still came out as more important than high growth potential.

Insurance and financial advisors will look for corroboration from other researchers. But since this particular survey was large (over 1,000 people); included people with $10,000 or more in stocks, bonds, mutual funds, self-directed individual retirement accounts, and 401(k)s; was done recently; and was the work of two major brands (Wells Fargo and Gallup), the findings merit some mulling. For instance:

  • There is no indication about whether the people surveyed owned annuities. That would seem to be a critical factor, since fixed annuities do guarantee principal and many variable annuities offer fixed accounts as well as various sorts of guarantees for income.
  • As part of the annual check-up with clients, the advisor might want to revisit the topic of guarantee of principal, even with people who previously indicated moderate or high tolerance for risk.
  • If a hot growth stock or mutual fund has lit some fires recently, over half the people that advisors see will probably have little to no interest in it, even those who are of means, still working and/or younger adults.
  • For the majority, using an “almost like a guarantee” strategy will likely lose ground to “this is guaranteed.”

Linda Koco, MBA, is a contributing editor to InsuranceNewsNet, specializing in life insurance, annuities and income planning. Connect with Linda →

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