Fear of volatility holds investors back
Steve Burgess
Fear of losing their retirement savings is holding back one in two Australian investors from fulfilling their investment ambitions, according to a new survey commissioned by financial services giant AXA Australia.
Conducted by independent research house Synovate, the 2007 Investor Trends Report found that 50 per cent of investors do not have the confidence to invest for higher returns or try more aggressive strategies, despite recognising that, financially speaking, they should be doing more.
General manager wealth management AXA Steve Burgess said investor confidence and having enough to live comfortably in retirement without relying on the pension is a growing issue for Australians.
“Our inflows confirm super is fast becoming the preferred vehicle for saving for retirement, and the report supports this . . . investment returns will be critical to bridge the gap between people’s savings and the money they will need to comfortably retire,” Burgess said.
“Simply put, accelerating their investment growth is one way to help people enjoy the retirement lifestyle they desire.”
According to Burgess, the dilemma arises when investors are faced with deciding the right risk profile for their investments.
“When asked to define their risk profile, 29 per cent viewed themselves as either defensive or moderately defensive, compared to 43 per cent who saw themselves as balanced investors and 28 per cent who viewed themselves as growth or high growth.”
“According to AXA’s report, investors aspire to a risk profile that is more aggressive, 72 per cent of those that described themselves as defensive investors wanted to be more aggressive.”
The research was conducted in preparation of the release of AXA’s new capital protection product in October that will address these issues, after it found that 67 per cent of those surveyed would invest their super in high growth funds if they had capital protection, compared to only 30 per cent without protection.
“The research confirms that in today’s increasingly volatile market, a capital guarantee can help deliver the peace of mind many investors need to put their money into growth and high growth assets,” he said.
Burgess said that while there are some products that offer capital protection in Australia, they are not very popular because they use an inefficient strategy called ‘threshold management’ to offset risk.
“Under this model as markets fall more of the investors assets are switched into defensive asset classes. This methodology perpetuates bad investment habits in our market. When markets fall they sell; when markets rise they buy.”
“AXA are offering a new generation of capital protected products in the Australian market based on dynamic hedging . . . this will enable investors to remain fully invested in growth assets even as markets fall with the benefit of the guarantee.”
The fee-based product will be sold through advisers and will target pre-retirees with more than $40,000 in superannuation.
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