Investors redefine risk, think “New Normal” is here to stay – UBS Survey
Eliane Chavagnon, Wealth Briefing reporter in London
Wealthy investors are much more upbeat about their financial situation and seem to have redefined their perception of “risk,” according to UBS Wealth Management Americas’ third Investor Watch report.
According to the survey of high net worth and affluent investors, 64 per cent of investors say their financial situation is “excellent” or “very good,” up considerably from six months ago (44 per cent).
Meanwhile, when it comes to defining what risk is, investors seem to have strayed away from terms like “volatility,” “standard deviation,” and other “jargon,” UBS said. Instead, 41 per cent now define risk as “permanent portfolio loss,” with 70 per cent of investors saying they are more concerned about avoiding losses than missing out on market gains (30 per cent).
“After the 2008 financial crisis, there was much discussion about the ‘new normal’ – a more reasoned and grounded approach among American investors,” said Emily Pachuta, head of investor insights.
“Many wondered how long this would last, particularly as investors historically displayed tendencies towards amnesia, forgetting about past losses when markets rebounded,” she said. But apparently the latest “new normal” is here to stay.
Pachuta added: “Even as they see the economy and their own financial situation improving, today’s investor remains focused on avoiding risk as a way to help achieve their financial goals – and this holds true even for younger investors.”
However, it’s worth bearing in mind that economic growth is not even forecast to hit 2 per cent this year – and that conditions in the real economy are not “normal” again yet based on long-term averages, and thus it may be a while before investors return to a “business as usual” mindset.
Cautiousness, priorities
UBS said that, despite greater optimism and key indices closing at “record levels,” investors “are not rushing back to the markets.” They are content with current and significant cash positions (22 per cent on average), while just 26 per cent plan to reduce the cash they have, it said.
Meanwhile, being able to afford the healthcare and support for old age remains a top personal concern at 31 per cent (up from 26 per cent in January) for investors of all ages. This echoes findings from a recent Spectrem survey, which found that personal worries have started to outweigh financial concerns among the wealthiest investors in the US.
But while long-term care is a seemingly greater concern than retirement (16 per cent), a majority of investors are not prepared for managing their long-term care needs, the survey found. In fact, only 37 per cent feel “highly prepared,” compared with 64 per cent who feel this way about their retirement planning, UBS said.
Perceptions on debt
According to the survey, most investors believe there is “good” and “bad” debt. The former is associated with making a “sound investment” such as a mortgage on a primary home or paying for education, while investors view “bad” debt as a sign of “living beyond one’s means or borrowing for luxuries,” UBS said. Examples of so-called bad debt include not paying off a credit card balance, borrowing from friends and family, and having a second mortgage on one’s home, the firm added.
Gender differences
The survey also found that 44 per cent of women are concerned about the future of social security, compared with 30 per cent of men. Women are also more worried about: being able to afford long-term care (37 per cent versus 27 per cent); having someone to care for them in their old age (25 per cent versus 13 per cent for men); and outliving their assets (22 per cent compared with 12 per cent for men).
Meanwhile, 32 per cent of women investors surveyed said they were “considerably more worried” about the sequester, whereas only 23 per cent men said this.
These gender-related findings add to a number of previous studies and surveys which have highlighted differences in investment approaches and perceptions among men and women. In November 2012, for example, Fidelity Investments found that when it comes to financial planning among married millionaire couples, there are significant disparities between male and female sole decision-makers – one being that women take the more holistic route, while men set their sights on investment returns. While that survey focused on married as opposed to individual investors, it raised some interesting points, such as that, overall, married millionaire women are typically more risk-averse than men and therefore may be better candidates for financial advice due to their willingness to accept guidance.
Investors’ main worries
The UBS survey also identified what is most alarming investors at the moment. Perhaps unsurprisingly, US political and economic issues dominated concerns, with 73 per cent saying they were “extremely” or “very worried” about the political environment in Washington.
Rising healthcare costs (64 per cent) and the size of the US national debt (60 per cent) followed respectively, with Middle East unrest (44 per cent) and tax hikes (43 per cent) rounding out the top five.
A total of 2,611 US investors took the survey between March 19-25, all of whom had at least $250,000 in investable assets; half the investors had at least $1 million in investable assets.
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