Investors Hunkered Down

Prudential Financial recently conducted an online survey of investors, "The Next Chapter: Meeting Investment & Retirement Challenges."

http://news.prudential.com/images/20026/2011TLConsumerStudyFINAL.pdf

The study yielded some interesting data.

• 44% of the participants said they are not likely to ever put money in the stock market.

This is rather alarming, because it means a substantial portion of Americans are forsaking the asset class (stocks) with the greatest long term returns when compared to bonds, real estate and cash instruments (CDs, bank accounts, money market accounts).

• 61% believe the principles of investment diversification and asset allocation have changed.

The principles of successful investing have not changed. We know that markets are fickle. Asset allocation and diversification cannot and do not provide a shield from extreme market volatility. However, over long periods, no other strategy provides better results.

• 66% are concerned that they will miss out on the stock market recover based on their current portfolio mix.

Many investors bailed out of equities at or near the bottom of the recent stock market swoon. Since March of 2009, the low point, the stock market is up well over 100%. Investors who were not properly invested in equities lost out on this opportunity. Moreover, the opportunity will not present itself again until we have yet another economic crisis.

• 72% of Americans agree that they need to think differently about saving and planning for retirement.

The economic crisis, stock market crash and housing collapse may yield some long term benefit, if Americans actually begin reducing personal debt and saving more. Very few Americans are on track for a financially secure retirement.

• 69% believe few financial service firms are trustworthy.

The banks, wire houses, insurance companies, and credit unions have largely failed investors. In general, they have not served their customers in a fiduciary capacity. They have not engaged their customers in comprehensive planning. Instead they have offered complex and confusing products that have essentially transferred billions of savings from investors to large financial institutions.

Many Americans need to make a major change in their approach to retirement. If they do not, they run the risk of finding that the last decades of their lives will be something far less than golden. Among other findings, the Prudential survey suggests that the need for greater financial and investment literacy is great.