Caution Lingering Among Long-Term Investors Four Years After 2008
Financial Crisis, T. Rowe Price Survey Finds
BALTIMORE, Nov. 13, 2012 /PRNewswire/ --
News
Four years after the 2008 global financial crisis, the onset of
a severe economic recession, and ongoing market turbulence, a lack
of faith in equity investing appears to be lingering, even for
long-term investors who say that saving for retirement is their top
financial priority. In an online survey of 850 adults in
the United States aged 21-50 with
at least one investment account, just over six in ten investors
(61%) believe that investing in stocks is very important or
important to helping them achieve their retirement savings
goals. The survey was conducted in August 2012 by Harris Interactive for
T. Rowe Price.
And while about half of investors (51%) surveyed say that they
have roughly the same tolerance for risk they had before the
financial crisis, 37% say they are now refraining from investing in
stocks because of current economic or market conditions.
Investors' reluctance to invest in stocks is reflected in data from
the Investment Company Institute, which shows that net new cash
flow into stock mutual funds was negative in 30 of the last 48
months – including 15 of the last 16 – through September 2012.
Investors' aversion for stocks stands despite historical
evidence showing that stocks, as measured by the S&P 500 Index,
have outperformed other asset classes with an annualized total
return of approximately 9.8% between 1926 and 2011[1]. Over
the course of a long-term retirement savings program, an
under-allocation to stocks could lead to shortfalls in investors'
account balances, T. Rowe Price
financial planners believe.
Selected survey findings
- Just over six in ten investors aged 50 and under (61%) believe
that investing in stocks is very important or important in helping
them achieve their long-term retirement savings goals.
- Accordingly, 37% of investors say that they are currently
refraining from stock investing. Factors cited include the
pace of the U.S. recovery, general market volatility, political
uncertainty, rising health care costs, actual or potential
unemployment, the pace of the global economic recovery, the pace of
the U.S. housing market's recovery, the Eurozone debt crisis, and
potentially higher taxes on income, dividends, and capital
gains.
- Risk aversion is also prevalent in investors' attitudes toward
fixed income investing, with 76% of investors saying they are only
somewhat or not at all willing to take on more risk to obtain a
potentially higher yield.
- The crisis appears to have ushered in a new era of financial
prudence: with respect to their personal savings, 81% of
investors say they are saving about the same or more than they were
before 2008.
Quotes
Stuart Ritter, CFP®,
senior financial planner with T. Rowe
Price:
- "The lack of faith in equities, even among long-term investors,
is troubling. Historically, stocks have provided more
long-term growth opportunities than bonds, short-term investments,
or other vehicles that are generally considered to be more
conservative. Investors aged 50 and under typically have
enough time to overcome market setbacks and can decrease their
exposure to stocks as they get closer to retirement age."
- "Investors have experienced a lot of market turbulence and
tough economic times over the last several years, so it's
understandable from an emotional perspective that many of them –
including younger investors – might be reluctant to invest in
stocks. But people with decades to go before retirement need
to do their best to block out the noise of the day and focus on the
long term. For investors with a long time horizon and enough
tolerance for volatility, stocks have always been the best asset
class for growth potential and for staying ahead of
inflation."
- "Younger investors, especially those recently out of college,
are used to having short-term goals measured in months. The
idea of developing a long-term goal, such as saving for a
retirement that might be 40 years away, is new to most of
them. It requires patience, discipline, and a new way of
thinking."
About the survey
The survey was conducted online within the United States by Harris Interactive on
behalf of T. Rowe Price from
August 8-20, 2012, among 850 adults
aged 21-50 who have at least one investment account. This
online survey is not based on a probability sample and therefore no
estimate of theoretical sampling error can be calculated.
Figures for age, sex, race/ethnicity, education, region, and
household income were weighted, where necessary, to align them with
their actual proportions in the population.
Harris Interactive is one of the world's leading custom market
research firms. Known widely for Harris Poll and for
pioneering innovative research methodologies, Harris serves clients
in 196 countries and territories through its North American and
European offices and its network of independent market research
firms. For more information, please visit
www.harrisinteractive.com.
About T. Rowe Price
Founded in 1937, Baltimore-based T. Rowe Price is a global
investment management organization with $574.4 billion in assets under management as of
September 30, 2012. The
organization provides a broad array of mutual funds, subadvisory
services, and separate account management for individual and
institutional investors, retirement plans, and financial
intermediaries. The company also offers a variety of
sophisticated investment planning and guidance tools. The
Retirement Plan Services division currently serves more than 3,500
retirement plan sponsors and more than 2 million retirement plan
participants. T. Rowe Price's
disciplined, risk-aware investment approach focuses on
diversification, style consistency, and fundamental
research.
[1] Source: Standard & Poor's. The annualized returns for
bonds and Treasury bills over the same period were 5.8% and 3.7%,
respectively. Past performance is not a guarantee of future
results, and it is not possible to invest directly in an index.
SOURCE T. Rowe Price Associates