Defined contribution and defined benefit participants are adopting goal-oriented approaches to offset risk, as opposed to pursuing the highest potential returns, according to research commissioned by Principal Global Investors.
The study sees the shift to more cautious investing as a fundamental change, not a short-term trend.
"We are seeing investors operate with more caution," said Barb McKenzie, chief operating officer of Principal Global Investors. "Income and risk are more important than high returns. Goal-oriented investing is the major theme with investors today."
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Baby boomers especially are retreating from a risk-taking mode.
Instead, they are more willing to accept lower returns in exchange for higher probability.
Defined benefit management teams are moving more assets into real assets and alternative credit, indicating their preference for more predictable returns to protect against volatility in equities.
Real estate and infrastructure investment are up 26 percent and 23 percent from 2012, according to the survey.
Defined contribution investors are continuing to favor life-cycle funds that guard against downside risk. The Principal survey showed that investor interest in target-income funds increased 22 percent between 2012 and 2014, the largest increase in interest in any fund strategy.
Target-risk funds and target-date funds increased 14 percent and 12 percent in the same period.
"While the investment environment remains challenging, investors want two things: low-cost options to meet their perceived needs and assets that can deliver specific goals," said Amin Rajan, CEO of CREATE-Research, the firm commissioned by Principal to execute the survey.
Rajan said investors' "specific goals" are capital growth, regular income, inflation protection and capital conservation.
"This is the age of goal-oriented investing," said Rajan.
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Nick Thornton
Nick Thornton is a financial writer covering retirement and health care issues for BenefitsPRO and ALM Media. He greatly enjoys learning from the vast minds in the legal, academic, advisory and money management communities when covering the retirement space. He's also written on international marketing trends, financial institution risk management, defense and energy issues, the restaurant industry in New York City, surfing, cigars, rum, travel, and fishing. When not writing, he's pushing into some land or water.
