One hopeful sign as the economy continues its halting recovery is that Mass Affluent investors are showing an increasing appetite for investment risk, according to a new study by the Spectrem Group.
In 2009, the height of the economic downturn, 41 percent of investors with a net worth of $100,000 and $1 million (not including primary residence) identified their risk tolerance as Conservative. Sixty-four percent believed it was more important to protect their principal than grow their investments.
That percentage decreased to 55 percent in 2010, and this year, 45 percent of Mass Affluent investors hold this attitude. As over the past two years, the oldest investors ages 65 and up are the most risk averse. Fifty-six percent feel it is more important to protect their principal than grow their investments. The younger investors ages 54 and under are the least likely to share this belief.
In fact, they are more than twice as willing (31 percent versus 14 percent) to take a significant investment risk to earn a high return than are investors ages 65 and up.
These younger investors are at once the most concerned about the amount of debt their household currently has, but also are most likely to optimistically expect that their personal financial goals will be stronger one year from now. Mass Affluent investors at the $500K-$749K wealth level are the least optimistic about achieving their financial goals in 2012.
For the most part, there is no correlation between advisor dependency and how one feels about protecting their principal. However, more than half of those who regularly consult with an advisor, but still make the final decisions regarding their finances, are most likely to be confident of achieving their financial goals a year from now. Those who are dependent on an advisor to make all decisions regarding investments are the least willing to take a significant risk to earn a high return. This Conservative mindset is keenly felt in their attitude that even as they rely on a professional advisor, they are most worried about achieving their financial goals in the next 12 months.