U.S. Investor Behaviors Challenge Realities, Yet Positive Outlook Takes Hold
Investors Still Focused on Preserving Assets and Investing at Home,
According to Franklin Templeton Global Investor Sentiment Survey
San Mateo, CA, April 24, 2013 – Nearly two-thirds (65 percent) of American investors believe the U.S. stock market will be up in 2013, according to a Franklin Templeton survey, yet a lingering bias towards risk avoidance continues to impact their willingness to invest more aggressively. In fact, despite a fourth consecutive year of positive returns from the S&P 500 Index in 20121, 69 percent of U.S. investors plan to pursue a more conservative strategy or make no changes to their investments this year.
The 2013 Franklin Templeton Global Investor Sentiment Survey polled 9,518 investors in 19 countries across Asia Pacific, Europe and the Americas, including 501 in the U.S., on their current attitudes towards investing and their expectations for 2013 and the decade ahead.
“Despite investors’ overall positive outlook, it appears that avoiding loss, rather than achieving higher returns, is still a top priority,” said Greg Johnson, president and chief executive officer of Franklin Templeton Investments. “Clearly, the market volatility over the past five years has reinforced a preference among investors for capital retention over investment gains. As seen in recent years, this risk avoidance has led many investors to remain on the sidelines, missing opportunities. Working with a financial advisor can be the best resource for evaluating all sides of the risk equation.”
Contributing to investor risk aversion is an erroneous perception of market performance by nearly a third (31 percent) of American investors who incorrectly believe the U.S. stock market was flat or down last year. In reality, the S&P 500 Index was up 16 percent in 2012.1
Uncertainty about the markets is causing some U.S. investors to avoid stocks altogether, with 37 percent of U.S. investors responding that they think they can meet their long-term investment goals without investing in stocks, even though stocks have outperformed bonds, gold and cash over the long term.2 Additionally, 43 percent report that they are skeptical or pessimistic about the U.S. stock market.
Investors cited concerns about government fiscal policy and the state of the global economy as the most common reasons for their reluctance to invest in 2013.
“Many investors need to rethink risk and focus on the long term,” said Wylie Tollette, director of Performance Analysis and Investment Risk for Franklin Templeton Investments. “Risk avoidance and risk management are two different things. Trying to avoid short-term risk and volatility entirely may expose investors to other kinds of risks, such as inflation and the impact of rising interest rates. These longer-term risks can negatively impact investors' ability to meet their financial goals.”
David McSpadden, senior vice president of Global Marketing Services for Franklin Templeton Investments, added, “While we all like to believe we’re making perfectly rational investment decisions, history would indicate that we often don’t. We encourage investors to work with their financial advisors to take a critical look at how common ‘irrational’ behaviors may stop them from pursuing a wiser course of action.”
Younger Investors Exhibit Divergent Views
In several instances, responses from younger investors (aged 25 to 34) notably diverged from older counterparts.
More than half (57 percent) of younger investors do not see stocks as essential to meeting their long-term investment goals—the highest percentage among all age groups—and younger investors have a 14 percent smaller allocation to stocks than their older counterparts. Younger investors were also more likely to be conservative in 2013.
Younger investors do, however, show a greater willingness to invest abroad going forward, planning to invest only two-thirds of their assets in the U.S. this year—a lower amount than other age groups.
U.S. Investors Largely Stick to Home Ground
While survey respondents outside the U.S. identified Asia as the region most likely to provide superior returns, a majority of U.S. investors remain bullish on their home market. Over half (54 percent) think the U.S. will offer the best equity investment opportunities in 2013. On average, U.S. investors said they currently allocate 78 percent of their investments to the U.S., while over a third (39 percent) of respondents report that they have all of their assets in U.S. investments.
Looking forward, U.S. investors don’t appear to have a big appetite for more global exposure. Eighty-seven percent say they plan to keep at least half of their assets at home over the next 10 years. The top two concerns about investing outside the U.S. were that foreign markets were perceived as riskier, and that investors don’t feel they know enough about foreign markets.
“We are excited to see prospects for the U.S. markets rebounding in investors’ eyes. However, we believe it’s wise to look for opportunities across the full array of markets available,” said McSpadden. “The U.S. currently represents about 35 percent of world market capitalization.3 Investors keeping all of their investments stateside are automatically excluding well over half of the world’s investment opportunities. Engaging with a financial advisor can help interested, but uncertain investors find international investments that are suited to their goals.”
Forward Outlook Looks Brighter
The current investment sentiment may seem skeptical, but investors turned markedly more positive as they looked to the future.
Four in five U.S. investors (81 percent) are optimistic that they’ll reach their long-term goals, with 60 percent noting their primary investment goal as retirement. Sixty-nine percent expect equities will provide among the highest returns over the coming decade.
The Franklin Templeton Global Investor Sentiment Survey, conducted by ORC International, included responses from 9,518 individuals in 19 countries: Brazil, Chile and Mexico in Latin America; Australia, China, Hong Kong, India, Japan, Malaysia, South Korea and Singapore in Asia Pacific; France, Germany, Italy, Poland, Spain and the UK in Europe, and the United States and Canada in North America. Survey respondents were between the ages of 25 and 65 in Latin America and Asia Pacific and 25 and older in Europe and North America. Respondents were required to own investable assets, such as stocks, bonds, mutual funds, etc. In addition, a minimum investable asset threshold was set for each country to ensure that the respondent had sufficient investments, providing a knowledge base from which to answer the survey questions. Surveys were completed from January 14 to January 25, 2013, in all countries.
About Franklin Templeton
The principal underwriter of Franklin Templeton’s U.S.-registered products is Franklin Templeton Distributors, Inc., a wholly-owned subsidiary of Franklin Resources, Inc. [NYSE:BEN], a global investment management organization operating as Franklin Templeton Investments. Franklin Templeton Investments provides global and domestic investment management solutions managed by its Franklin, Templeton, Mutual Series, Bissett, Fiduciary Trust, Darby, Balanced Equity Management and K2 investment teams. The San Mateo, CA-based company has more than 65 years of investment experience and over US$823 billion in assets under management as of March 31, 2013.
For more information, please visit franklintempleton.com or connect with Franklin Templeton on Twitter (@FTI_US). Read the Beyond Bulls & Bears blog featuring perspectives from Franklin Templeton investment professionals around the world and the Investment Adventures in Emerging Markets blog from Mark Mobius (@MarkMobius), executive chairman of Templeton Emerging Markets Group.
All investments involve risks, including possible loss of principal. Stock prices fluctuate, sometimes rapidly and dramatically, due to factors affecting individual companies, particular industries or sectors, or general market conditions. Foreign securities involve special risks, including currency fluctuations and economic and political uncertainties.
1. Source: © 2013 Morningstar. All rights reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Indexes are unmanaged and one cannot invest directly in an index. Past performance does not guarantee future results.
2. Performance for the 35-year period ended December 31, 2012. Source: © 2013 Morningstar. Stocks are represented by S&P 500 Index; Bonds are represented by Ibbotson Associates SBBI Long Term Corporate Index; Gold is represented by the S&P GSCI Gold Spot Index; and Cash Equivalents are represented by the P&R 90-Day U.S. Treasury Index. Indexes are unmanaged and one cannot invest directly in an index. Past performance does not guarantee future results.
3. Source: ICI (Investment Company Institute), Pensions & Investments, MSCI Perspective as of December 31, 2012.
Cash equivalent instruments are considered to be low risk as they offer the most stability, but they have very little long-term growth potential. Treasuries, if held to maturity, offer a fixed rate of return and fixed principal value; their interest payments and principal are guaranteed. In general, the bond market is volatile and bonds incur interest rate risk. As interest rates rise, bond prices usually fall, and vice versa. Stocks generally have the highest potential returns but tend to be the most volatile. Their prices fluctuate, sometimes rapidly and dramatically, due to factors affecting individual companies, particular industries or sectors, or general market conditions. Gold is a hard asset and may tend to perform well during recessionary and inflationary times. The price of gold may be volatile, fluctuating substantially over short periods of time.
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