Investor Uncertainty Leads to Lower Retirement Expectations

by Christine Dugas

Despite optimism about the stock market, most investors are still so worried about uncertainty and volatility that they are just lowering their retirement expectations.

"If you go back to pre-2008, you would have heard that when equities go down, it's a good time to buy them," says Frank Porcelli, head of BlackRock's U.S. retail business. "That sentiment has changed dramatically."

Only one out of 10 investors is making any adjustments to their portfolio, according to a Barometer survey released today by BlackRock.

Even growing concerns about not meeting investment goals have not sparked more portfolio changes. In fact, the percentage of investors willing to adjust their portfolios has fallen to 11% today from 21% six months ago, the survey says.

Why investors are stuck in place:

•Not knowing where to invest. Cash balances remain high, with investors keeping an average 26% of their portfolios in cash, says the MFS Investing Sentiment Survey. The reason: uncertainty about where to invest and fear of losing money, BlackRock says.

•Knowledge gaps. It's hard for investors to evaluate alternative investment options. Many still focus on bonds rather than stocks, although 61% realize that they need to improve their understanding of income investing, the survey says.

•Ignoring inflation risk. Investors are not focused on the impact of inflation. "Yet just a 3% inflation rate over 25 years can reduce their purchasing power by half," Porcelli says.

There are options. Fidelity says that U.S. Treasury Inflation-Protected Securities (TIPS) can help combat risk, and there are mutual funds that address inflation, such as the Pimco Inflation Response Multi-Asset Fund.

But instead of adjusting their investment portfolios, many investors are changing their retirement plans: 46% say they are considering a later retirement, up from 30% a year ago.

A recent study by Prudential said that 40% of Americans are happy to work past 65 to remain physically and mentally healthy. But BlackRock found that a longer life also heightens concerns about market volatility and the depletion of their savings.

READ MORE