Are Portfolio Allocations and Risk Tolerance Out-of-sync? Investors Have Become More Risk Averse in the Past Decade, but Continue to Hold High-Risk Assets

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New research from WealthVest Marketing finds a gap between investors’ risk tolerance and the assets they own. Financial professionals may be able to close the gap by incorporating conservative options that offer principal and income guarantees into their clients’ retirement strategies.

WealthVest Co-founder and President Wade Dokken

WealthVest Co-founder and President Wade Dokken

The new risk profile of American investors creates some distinct challenges for financial professionals.

Retirement investors are more risk averse than they were a decade ago. Yet, the results of a recent WealthVest Marketing survey show a significant number of retirement investors continue to hold risky assets. The survey includes about 1,400 investors age 45 or older.

Almost 80% of investors surveyed are more risk averse today than they were a decade ago, regardless of investment experience, affluence, gender, or geographic location. More than 50% are willing to take NO risk with their savings, and just one-in-five are willing to risk five percent of savings. In other words, most participants are unwilling to tolerate a bear market, which is defined as a 10% decline in the value of the stock market.

Despite widespread risk aversion, the most widely held investments in respondents’ portfolios are stocks and stock mutual funds. While stocks (and bonds) are staples in diversified portfolios, in the current market environment both may have more risk than expected.

The current combination of high stock valuations (as measured by PE 10) and low bond yields (as measured by 10-year Treasury rates) is unprecedented in U.S. history, according to Rethinking Retirement: WealthVest’s Retirement Realities Study. If stock valuations move lower and interest rates move higher, investors could be exposed to far more risk than they may have anticipated.

“The new risk profile of American investors creates some distinct challenges for financial professionals,” said WealthVest Co-founder and President Wade Dokken. “It’s important to note that relatively few respondents’ portfolios included assets with principal and income guarantees, like annuities. It’s possible that these types of options could provide advisors and investors with a means of generating income while preserving principal for investors with low risk tolerance.”

The findings of WealthVest’s survey are summarized in Rethinking Retirement: WealthVest’s Retirement Realities Study.

About WealthVest Marketing:
WealthVest is a financial services distribution firm specializing in training financial professionals in the essential building blocks of retirement planning. WealthVest provides the research and tools to help financial professionals, and their clients, plan for retirement.

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Dia Johnson
WealthVest Marketing
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