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UBS Q1 Investor Watch explores conflict between wealthy investors’ beliefs and actions


UBS Wealth Management Americas (WMA) has released its quarterly UBS Investor Watch report, "The conflicted investor," which is based on surveys of wealthy investors before and after the recent market volatility and geopolitical turmoil.

The findings reveal a struggle between investors' rational perspective and the emotional impact of the financial crisis. On one hand, investors believe in the economic recovery—79 per cent say it has met or exceeded their expectations—and nearly half (47 per cent) wish they had invested more during the rebound. On the other hand, many investors still carry emotional scars from 2008 that have kept them from fully participating in the recovery.
For example, the majority of investors (89 per cent) have maintained or increased their cash holdings since the crisis, while only 18 per cent are willing to assume more risk for greater returns. Recent volatility and global events have exacerbated investors' feelings of uncertainty and made them even less likely to change their behaviour. Forty-two percent say the volatility has rekindled memories of the financial crisis, and almost a quarter of investors believe it signals the start of a longer term market decline.
"Even before recent volatility tested their resolve, investors struggled to weigh the economic recovery and its positive effects on their finances against the lingering emotional fallout from 2008 and 2009," says Paula Polito, Client Strategy Officer, UBS Wealth Management Americas. "The financial crisis appears to have cast a long shadow on investors."
Investors with financial plans in place have far greater confidence during times of market volatility than investors without a plan. A full 98 per cent agree that their plans keep them on track, and 97 per cent agree that their plans help them stay focused on long-term goals, not daily market fluctuations.
Wealthy investors disagree about how long the volatility that started in 2016 will last: most (77 per cent) expect it to be temporary, while nearly a quarter (23 per cent) think it signifies that the US is on the verge of a longer-term market decline. Contributing heavily to this debate are diverse geopolitical events affecting markets, as well as the large volume of information causing broad confusion. Investor Watch revealed that 85 per cent of wealthy investors believe the volatility is driven by so many factors it is too difficult to predict where markets are headed.
More than three quarters (76 per cent) think the myriad global concerns affecting markets make it challenging to understand the whole financial picture. Eighty-one percent feel that global terrorism is part of the “new normal.” Eight out of 10 (80 per cent) are worried about the outcome of the 2016 U.S. Presidential election, and three quarters (76 per cent) are concerned about the size of the country’s debt load.
Wealthy investors have been holding significant cash reserves (20 per cent on average) for the last several years, many doing so as a perceived safety precaution. And, while they continue to hold onto their funds, more than half believe having “too much” cash is unwise. They say they are ready to invest a quarter of their cash when they come across the right investment opportunity. Only 14 per cent indicated they would advise the next generation to maintain a large cash allocation.
However, that does not mean all wealthy investors are putting their cash to work—quite the opposite. Nearly nine out of 10 (89 per cent) have maintained or increased their cash holdings since the financial crisis, and approximately 40 per cent believe investors can never hold “too much” cash. Seven years after the financial crisis and the bull market that followed, only 33 per cent see market declines as opportunities to invest.
Investor Watch found that as a group, Millennials are more likely to regret selling investments during market declines (52 per cent vs. 23 per cent of Gen X and 14 per cent of Baby Boomers) and not investing more during recovery periods (68 per cent vs. 52 per cent of Gen X and 44 per cent of Baby Boomers).
“Millennials are arguably more conflicted than other generations when it comes to how they view investing,” says Sameer Aurora (pictured), Head of Client Strategy for UBS Wealth Management Americas. "Almost half say they would take on more risk now, but they’re holding twice as much cash as Baby Boomers. Also, Millennials are unhappiest with how their portfolios are positioned, but they are the least likely to do anything about it.”
Additionally, given their relative youth during the financial crisis, Millennials learned different lessons than Gen Xers, Baby Boomers and members of the Swing/WWII Generation. For instance, more than half of wealthy Swing/WWII investors (57 per cent) took away that sticking with a ‘buy and hold’ investing strategy is important—but only one in three Millennials (33 per cent) feels the same way. By contrast, while 27 per cent of Millennials say market timing is the most valuable lesson they learned, only 10 per cent of Baby Boomers agree.
Investor Watch found that Millennials express a willingness to take on more risk since the financial crisis (43 per cent)—double that of Gen X (21 per cent), more than three times that of Baby Boomers (12 per cent) and almost five times more than Swing/WWII (9 per cent). Yet, when asked about cash holdings, Millennials, on average, hold the most cash: 41 per cent vs. 28 per cent for Gen Xers, 20 per cent for Baby Boomers and 19 per cent for Swing/WWII Generation.

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