August 9, 2011
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Just as the Great Depression left a generation with a poverty mentality that still persists, the two bear markets of the last 10 years risk shaped an entire generation’s attitude to investing.
That’s a key finding from a survey of affluent Americans commissioned by Merrill Lynch and released earlier this year, and it raises important implications for how financial advisors should deal with conservatively-minded investors.
Events over the past decade have made it fashionable for affluent investors to adopt a conservative approach to investing. That stance is the single biggest factor preventing investors of all stripes from achieving their retirement goals –and that’s particularly the case for younger investors.
A perspective on conservative investing
Categorizing yourself as conservative when it comes to investing is nothing new – for understandable reasons, this has historically been true for seniors and retirees. Bear markets such as 1973-1975, 1980-1982 and the tech meltdown of 2000-2002 broadened the appeal of conservative investing to include many in their 40s and 50s – and this certainly happened in the first half of the last decade.
Throughout those downturns, though, there was generally a consistent pattern where investors became more conservative with age.
The 2008 global meltdown turned this pattern upside down. Today six in 10 affluent investors under 35 consider themselves conservative –significantly higher than older investors aged 35 to 65. What’s striking is that of those who call themselves conservative investors, 90% don’t understand the extent to which this approach will lead to lower returns in stronger markets and can stand in the way of their retirement goals.
These are some of the findings from a Merrill Lynch survey of Americans with over $250,000 in investment conducted in December of last year:
- Overall, 47% of affluent Americans described themselves as “conservative investors.”
- 41% of affluent investors aged 35 to 64 fell into this category, compared to 59% of those 18 to 34, whose average age is 31.
- Two-thirds of conservative investors believed that a mix of low and moderate risk investments will shield them from losses during market downturns.
- However, only 25% believed that this mix will result in sacrificing opportunity during stronger markets and just 10% hold the view that this approach may impede achieving their retirement goals.
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