By June 11, 2013 Read More →

Missing out on longer term gains?

  • 95% of British mass affluents understand funding retirement is their responsibility but a quarter have not yet started planning for their retirement
  • 75% of British mass affluents agree that growing their wealth is one of their top financial priorities but 46% call themselves risk averse and are unwilling to take any risks
  • Nearly half of British retirees surveyed said they would have done something differently knowing what they know now about retirement

Europe’s mass affluent investors risk missing out on doing more to achieve their longer term financial goals, as a fear of loss is preventing them from recognising the need to change their investment approach, according to a new report from BlackRock, which also outlines how financial advisers can help them overcome this fear.

Fear and inaction

Findings of the BlackRock report “Driving the conversation” uncovered investors’ emphasis on short-term returns and a misconception of long-term risk. The mismatch between investors who on the one hand said growing their long-term wealth is one of their highest financial priorities contrasts with those unwilling to take any risk with their money, highlighting across Europe that fear of loss is higher than reaching out for longer term gains:

  • 55% call themselves risk averse and unwilling to take any risks with their money
  • 45% or respondents said they prefer to invest for the short term
  • 35% saving more in cash or deposit accounts than a year ago
  • 85% of mass affluents in the UK hold cash, highest in Europe1
  • The UK average amount of savings in cash is £36,966

Alex Hoctor-Duncan, Head of EMEA Retail at BlackRock, said: “For some investors, the stark contrast between their longer-term financial goals and their current positioning requires them to think and invest differently, to see how emotions may be holding them back from taking the best and most objective course of action. This should be a key subject for advisers, helping investors to understand the impact of their emotions on investment choices.”Longer life; a blessing and an expensive challenge for retirement

There is a strong acknowledgement amongst the mass affluent group (83% of respondents across Europe) that funding later life is increasingly the responsibility of the individual, and that it has become tougher. However, a quarter has not yet started planning for their retirement and of those currently planning for it, 30% are not confident that they will achieve the level of income they want in retirement.

In Europe, life expectancy for 65-year-olds is well above 15 years, and the ratio of retirees to working-age adults is now around one retiree for every four people of working age across the European Union. Investors understand the increasing funding gap and the need to make their money last longer and work harder but are frightened to take steps out of cash.Lessons from retirees

The report also highlighted how the behaviour of those now saving for retirement contradicts many of the lessons current retirees say they have learnt. Nearly half of the retirees surveyed said they would have done something different knowing what they now know about retirement.

This is particularly interesting given that today’s retirees are able to benefit from relatively generous state or employer benefits. In particular, the report found that across Europe:

  • four in ten retirees would have started their own pension earlier
  • one in four would have adopted a more aggressive approach to their investments
  • one in three would have continued to work for longer

However, despite the awareness amongst British mass affluents that they should be saving for retirement, 30% state that they cannot afford to, and 18% believe it is too late in life to start doing so. Drivers to encourage mass affluents in the UK to save more for retirement included further tax breaks.

“Increased life expectancy, the slow extinction of generous pension arrangements, state privations and low yields from traditional ‘safe haven’ assets are just the beginning of the challenges facing investors,” said Alex Hoctor Duncan. “They will also need to adopt a more outcome oriented approach and accept that achieving their financial goals may involve taking some risk.”What next?

Alex Hoctor-Duncan said: “The majority of mass affluent investors are too deeply entrenched in their current portfolio arrangements and short-term outlook to make changes without adviser guidance. Our report draws out how advisers can engage with clients to help them reassess risk, focus on desired outcomes and overcome some of the emotions that can cloud an investment approach.

“Fund managers and advisers can help this key group of investors understand that doing nothing now risks depleting their capital later, and that they need to overcome the disconnect between what they want, how they intend to get there, and overcome the fear of the need to change in this new world of investing.”

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Our in house editor who has many years financial services experience, and writes most of the journal entries you read on this site.

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