8 Feb 2016
The UK investing landscape has fundamentally changed in the last few years.
Long-term low interest rates, the decline of annuities and final salary pensions, and longer lives, have challenged many of the traditional strategies and assumptions we make about investing.
And in some cases, behaviour is taking a while to catch up.
That’s one of the findings of BlackRock’s latest Global Investor Pulse survey, the largest study of investor behaviour in the world.
Each year, Pulse asks tens of thousands of investors some of investing’s most important questions on retirement planning, asset allocation, attitudes, sentiment, and more.
Today I’ll focus on affluent Britons – those likely to be your clients and prospects – to reveal some highlights.
Retirement expectations are out of step with reality
Some of the most important recent changes in the investing world relate to retirement. Now more than ever, responsibility falls on the individual to provide for themselves in old age.
But Investor Pulse found a stark disparity between Britons’ expectations for retirement and their actions to achieve it.
The average ‘mass affluent’ investor in the UK – one with over £100,000 in investable assets, or earning over £100,000 – says they will need an annual retirement income of £32,456.
However, they are on track to save a retirement pot of just £340k, which will yield a rather smaller income of £12,850, according to BlackRock’s ‘CoRI’ cost of retirement tool. So even assuming that the state pension remains the same over the next few decades, they can expect a total retirement income of roughly £20k – a £12,000 annual shortfall (or £1,000 per month).
Advice has a key role to play in tackling this ‘expectation gap’. Investor Pulse found that people who seek advice have better balanced portfolios, are more knowledgeable about investing and feel more empowered and relaxed.
Cash, the oversized comfort blanket
Another key finding from Investor Pulse relates to cash.
Nearly three quarters (73%) of mass affluent Brits say it’s important for them to earn an income on their investments. Yet they still allocate 41% of their assets to cash, despite telling us that their ‘ideal’ allocation would be 33%.
Why does cash dominate portfolios like this?
One of the survey’s questions might shed some light. Respondents were asked to identify how they felt when ‘saving’ (in cash), and then how they felt when ‘investing’. We see that people are twice as likely to feel cautious or worried when investing, and significantly less likely to feel responsible or purposeful.
In contrast, when saving, people felt relaxed and responsible, with fewer doubts and concerns.
Thanks to pensions freedom, investors today have unprecedented choice and control over their financial futures. But they also now bear more responsibility than ever – and that makes many nervous.
As industry professionals, we are in a privileged position to help people make the right choices and successfully navigate the challenges that lie ahead.
Visit our webpage here for all the highlights from the latest survey, as well as conversation starters to help your clients today. And keep an eye on your inbox for BlackRock Adviser Exchange emails in the coming weeks for more updates.
Investor Pulse surveyed 31,000 investors around the world, 4,000 of whom are resident in the UK. 750 of those are classified ‘mass affluent’.
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