In light of the current economic recovery that has surpassed expectations —and the seven-year bull market that has coincided with it—wealthy investors say they should have invested more following the financial crisis.
Instead, many investors spent the recovery on the sidelines, trading risk for safety and performance for the comfort of cash.
Now, as volatility has spiked, investors are feeling even more trepidation. In January 2016, UBS conducted a survey to explore this conflict between investors’ beliefs and their actions, and found that although many investors were confident about the recovery and felt positive about their finances, they still lived in the shadow of the financial crisis. Following are the key findings1:
1. Investors said the economy had recovered but that emotionally they still felt affected by the crisis
After living through the worst recession in decades, eight out of 10 wealthy investors surveyed believed the economic recovery had met or exceeded their expectations. Additionally, 81 percent viewed the recent interest rate increase as a positive sign for the U.S. economy. Most investors (77 percent) thought of the 2016 market volatility as a short-term correction rather than the start of a prolonged market decline, and 69 percent believed it was is a good time to buy stocks.
Despite these positive views, the recession has made investors more risk-averse: 86 percent said the crisis still impacts how they think about their money today. Two-thirds said they had a greater fear of losing money than before the crisis, and as a result, only 18 percent were willing to take on more risk for greater returns. Almost a quarter believed that the current volatility signaled the start of a longer-term market decline similar to the 2008/2009 crisis.
2. Investors recognized that holding extra cash is a bad idea, but many were unwilling to put their cash to work
Though respondents held an average 20 percent of their financial assets in cash, more than half believed holding too much cash was a bad idea because of inflation and low interest rates. They said they were ready to deploy one-quarter of their cash when the right investment opportunity arose. Only 14 percent of wealthy investors said they would advise the next generation to maintain a large cash allocation.
That said, investors’ actions tell a different story. Nine out of 10 have held their cash steady or have increased it since the crisis. Indeed, investors seem paralyzed—only 33 percent see market declines as opportunities to deploy cash.
3. Lessons from the recovery have influenced performance expectations, and investors are relying more on financial planning to stay the course
In the past, many investors defined investment success by how much their returns beat the market. With the wisdom of hindsight, they have tempered their expectations. Today, only 17 percent are seeking to outperform the market.
Overall, investors indicate that having a financial plan is key to confidence during times of market volatility. Among those with a plan, nearly all say it helps them endure the volatility and remain focused on long-term goals.
1UBS Investor Watch: Analyzing investor sentiment and behavior, 1Q 2016
About the survey: UBS Wealth Management Americas surveys U.S. investors on a quarterly basis to keep a pulse on their needs, goals and concerns. After identifying several emerging tends in the survey data, UBS decided in 2012 to create the UBS Investor Watch to track, analyze and report the sentiments of affluent and high net worth investors. For this 14th edition of UBS Investor Watch: Analyzing investor sentiment and behavior, 1Q 2016, 2,638 affluent and high net worth investors responded to our survey from December 16 – 28, 2015. The core sample of 1,835 investors had at least $1 million in investable assets, including 494 with at least $5 million. With 91 survey respondents, we conducted qualitative follow-up interviews. This UBS Investor Watch also includes an oversample for younger generations:
• 584 Millennials: Respondents ages 21 – 29 who had at least $75,000 in household income or $50,000 in investable assets; respondents ages 30 – 37 who had at least $100,000 in household income or $100,000 in investable assets.
• 533 Gen X: Respondents ages 38 – 49 who had at least $250,000 in investable assets.
In light of the recent market volatility, a follow-up survey was conducted from January 24–25, 2016, with an additional 500 investors with at least $1 million in investable assets. Full report available upon request.
Kathleen Entwistle and Bryan Stephens are Financial Advisors with UBS Financial Services Inc., 61 South Paramus Road, Paramus, N.J. 07652 and 299 Park Avenue, New York, N.Y. 10171. UBS Financial Services Inc. financial advisors engage Worth to feature this article. As a firm providing wealth management services to clients, we offer both investment advisory and brokerage services. These services are separate and distinct, differ in material ways and are governed by different laws and separate contracts. For more information on the distinctions between our brokerage and investment advisory services, please speak with your Financial Advisor or visit our website at ubs.com/workingwithus. The strategies and/or investments referenced may not be suitable for all investors. UBS Financial Service Inc. a subsidiary of UBS AG. Member FINRA/SIPC.
This article was originally published in the April/May 2016 issue of Worth.