Who Wants A Guaranteed Rate of Return?

6/1/2021

 Nothing is guaranteed besides death and taxes.  That is paraphrased from Benjamin Franklin who famously wrote, “nothing can be certain, except death and taxes”.  Guarantees are few and far between in life, especially regarding finances and investing.  That does not stop investors from desiring guaranteed rates of return.  What types of investors are seeking guaranteed rates of return, and what type of return are they looking for?  Spectrem Group uncovered the types of investors that are more likely to seek out a guaranteed rate of return on the majority of their investments in recent research conducted with wealthy investors, and the answers may surprise you.

Fifty-five percent of investors would prefer a guaranteed rate of return for the majority of their investments when asked by Spectrem Group.  Business Owners, investors in the Information Technology industry, and Educators are the most likely occupational segments to prefer a guaranteed rate of return.  Interestingly, working investors are more likely to prefer a guaranteed rate of return than retired investors, 58 percent vs 53 percent.  The less knowledge an investor has regarding investing makes them more likely to prefer a guaranteed rate of return on the majority of their investments.

The most likely investor segment to prefer a guaranteed rate of return is understandably investors with a conservative risk tolerance.  Eighty-two percent of these investors would prefer a guaranteed rate of return.  Women are also more likely to prefer a guaranteed rate of return.  When considering age, Gen X investors lead the pack with 63 percent preferring a guaranteed rate of return for the majority of their investments.  WWII investors are the least likely to prefer that at 45 percent.  Lower levels of wealth would prefer a guaranteed rate of return.  This is likely due to the fact that they have less to lose, so the risk may feel too great being invested in something that does not provide a guaranteed return. 

Knowing what rate of return investors are looking for is where it starts to get very interesting.  Mass Affluent investors, those investors with a net worth between $100,000 and $1 million, not including their primary residence, are the least demanding regarding their desired guaranteed rate of return, with 45 percent wanting under five percent, and only 17 percent wanting over six percent.  Millionaire investors, those investors with a net worth between $1 million and $5 million, not including primary residence, require a bit more from their advisor.  Only 30 percent are looking for a guaranteed rate of return under five percent, and 26 percent seek a guaranteed rate of return over six percent.  Not surprisingly, Ultra High Net Worth investors, those investors with assets between $5 million and $25 million, have the highest expectations regarding a guaranteed rate of return.  Fourteen percent expect a return under five percent, while 42 percent expect a return over six percent.  This may be because these investors have access to other investment choices at that level of wealth that other investors may not be exposed to.

Knowing what investors expect regarding a guaranteed rate of return, and which investors are looking for that, can help both advisors and investors.  Advisors can be more aware of the investors potential to want a guaranteed rate, or at least have a discussion around it.  Investors can be assured that many other investors are like themselves, looking for a guaranteed rate of return, and knowing what type of rate other investors expect.