Are Mass Affluent investors becoming more cautious in their investment mindset? Our first quarter wealth segment study of investors with a net worth between $100,000 and $1 million (not including primary residence) finds an increase over last year of investors who conservatively prefer a guaranteed rate of return for the majority of their investments.
Financial Behaviors and the Investor’s Mindset finds that roughly six-in-ten Mass Affluent investors would prefer a guaranteed rate of investment return for the majority of their investors, compared with 54 percent in 2015. Conversely, one-third states that they are willing to take significant investment risk on a portion of their investments to get a high return. This is down from 38 percent last year.
Less than half (46 percent) of Mass Affluent investors cite taking risk as a primary factor in their wealth creation, while the level of risk is second only to track record as the primary criteria for selecting an investment.
“Stock market volatility in the past year has made Mass Affluent investors more cautious,” observed Spectrem Group President George H. Walper, Jr. “The majority consider themselves only fairly knowledgeable about investing and that diminishes their investor confidence.”
Regardless of age, a majority of Mass Affluent investors indicate a preference for a guaranteed rate of return for the majority of their investments. Baby Boomers (61 percent) and WWII generation investors (59 percent) are more likely than Mass Affluent Millennials and Gen Xers (53 percent and 54 percent) to express this view. The willingness to take significant investment risk on a portion of their investments to earn a high return decreases with age, with Millennials (59 percent) the most open to this investment strategy, compared with 48 percent of Gen Xers, 29 percent of Baby Boomers and 28 percent of World War II generation investors.
Across all Mass Affluent wealth segments, the wealthiest (with a net worth between $750K and $999K are the least likely to state a preference for a guaranteed rate of return for the majority of their investments. These non-Millionaire investors with a net worth between $500K and $749K comprise the highest percentage by wealth level of these investors to prefer that guaranteed rate of return.
Regardless of wealth segment, less than 40 percent of Mass Affluent investors are willing to take significant risk on a portion of their investments. This willingness does increase slightly with wealth segment, with 36 percent of those with a net worth between $750K-$999K willing to take significant investment risk compared to 32 percent of those with between $100K and $499K.
Analyzed by advisor-dependency, we find that self-directed investors who make all of their own investment and financial decisions comprise the highest percentage of Mass Affluent investors willing to take that significant investment risk (38 percent).