Investors' concerns and pessimism grew in 2011, and with it investors' risk tolerance, according to the MFS Investing Sentiment Survey.
"Across the board, investors' concerns rose in every major category. With a growing appetite to shun risk – 29 percent will never feel comfortable investing in stocks – and consistently high cash balances, investors are determined to avoid market volatility," said William Finnegan, senior managing director and head of U.S. retail marketing for MFS. "The challenge for investors and advisors is finding a middle ground where they can feel comfortable investing, while coping with the immediate emotional concerns of today's economic challenges."
Investors surveyed throughout the year grew more concerned as the year progressed in every category of economic issues presented. Concerns over a major drop in the stock market, weakness in the global economy and legislative gridlock in Washington, D.C. increased the most out of 12 categories, from February to October.
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Investors have shown a declining favorability across the board for commonly used asset classes in most investing and savings products in which to they could invest over the next 12 months. Investors soured on equities, bonds, and even cash, where many continued to have larger-than-expected allocations.
"As we have noted in past findings, the blow to investors' psyches from the Great Recession is longer-lasting than many financial advisors may have expected," Finnegan said. "As we begin 2012, investors and their financial advisors need to reconsider their asset allocation, assess their true risk tolerance, separate out fear, and re-think their overall approach to investing for their long-term goals."
These survey results are the second set of data from the third series of the MFS Investing Sentiment Survey, conducted in October. In November, MFS reported on advisors' growing pessimism. MFS conducted its second survey in June 2011 and reported its findings in September regarding Generation Y's investing sentiment and perceptions. In August, the organization reported about investors' perceptions and use of cash as part of their investment process. MFS conducted its first survey in February and issued three reports based on those results, detailing the disconnects between financial advisors and their clients, the challenges facing Generation X/Y and Baby Boomers, and the pessimism that permeates the mass affluent investor segment.
MFS, through Research Collaborative, an independent research firm, sponsored an online survey from Sept. 28 to Oct. 13, 2011, of 929 individual investors with more than $100,000 in household investable assets and 644 licensed financial advisors (either FINRA or SEC) who have been licensed for at least three years with at least $500,000 or more in annual mutual fund sales. All investor respondents make or share in making financial decisions for their households.
MFS is a global money management firm with investment offices in Boston, London, Mexico City, Singapore, Sydney, Tokyo, and Toronto.
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