Financial goals of investors under threat says latest BlackRock report

A fear of loss is preventing investors across Europe from recognising the need to change their investment approach, according to a new report from BlackRock.

The report – Driving the conversation – also outlines how financial advisers can help investors overcome their fears and subsequent inaction.

Investors are maintaining 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 that across Europe 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 affluent investors hold cash, with those in the UK holding more than their European counterparts – 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 is and the need to make their money last longer and work harder, but are frightened to move 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 learned. 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:

•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% of mass affluents in the UK state that they cannot afford to save for their retirement, with 18% stating they believe it is too late in life to start doing so.

Drivers to encourage mass affluent persons in the UK to save more for retirement include 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.”

to read the full report click here: [asset_library_tag 6720,Driving the Conversation]

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