Investors hoarding cash, miss stock market rally despite adviser efforts

Survey finds people still spooked by 2008 - 'the enemy they know' - as cash value erodes

Oct 29, 2013 @ 8:08 am

By Trevor Hunnicutt

Try as they might, advisers have been unable to get their skittish clients to stop hoarding cash, according to a poll released Tuesday.

A survey by the asset manager BlackRock Inc. found that American investors keep 48% of their investible assets in cash, 18% in equities and 7% in bonds. And most had no plans to decrease their cash holdings in the near future.

The pattern cuts across social class, with wealthy investors and everyday people alike remaining cautious about their exposure to equity markets five years after the financial crisis that hobbled the global economy. Half of investors globally chose negative words — “concerned,” “nervous,” “pessimistic” or “depressed” — to describe their view of their financial future, while the other half were positive, according to the Global Investor Pulse Survey.

Investments held in cash or equivalent investments decline in value over time because of inflation. Portfolios including greater exposure to stocks typically perform much better. About half of advisers contend that holding too much cash is among the most common mistakes made by investors, while nearly three-quarters of advisers say focusing on short-term returns is a common mistake.

“While folks don't necessarily see the enemy of inflation eating away at that cash position, they did see in 2008 when their statements declined,” said Rob Kron, head of investment and retirement education for BlackRock. “It's the enemy they know versus the one they can't see.”

Nearly three-quarters of advisers are optimistic about the next two years, compared with six in 10 of their clients, and slightly fewer than half of Americans, overall.

More than seven in 10 people who used advisers in the past year find the relationship helps them get their questions answered and their concerns heard. Advisers also help them select the best mix of investments, stay on top of market trends and plan for retirement. The poll also found that people with advisers are more confident about reaching their goals and planning for the future.

But four-fifths of the world's population, and nearly two-thirds of Americans, have no such adviser, the poll found.

The poll revealed that American households continue to face barriers to saving and investment, with 49% of their take-home pay going to cover bills, debt and living expenses. The global average is 40% of after-tax household income going to cover those costs.

As a result, Americans save just 16% of their take-home pay, with a third describing debt as an obstacle to moving their investments out of cash. The concern most frequently mentioned by people globally was “having to spend more than I earn.” Among specific concerns expressed by Americans, the cost of health care was at the top of the list, followed by weakness in the U.S. economy and job security.

The poll offered new evidence that retirement gets less attention than shorter-term goals, with investors generally saying they devoted more time considering a vacation or the purchase of a gadget or car than planning for retirement. But around a third of retirees said if they could have done things differently, they would have spent less money or started investing earlier.

BlackRock's researchers interviewed 17,567 people in twelve rich countries or territories, including 4,000 investors and 505 advisers in the U.S., between Aug. 24 and Sept. 16. The poll's margin of sampling error is plus or minus 3 percentage points.

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