American investors may have their eyes on long-term goals, but that’s not what they consider when they look at investments.
There, they’re very much focused on what happens in the short term, and that can undermine the long-term performance of their portfolios.
That’s according to a new TIAA-CREF survey, which found that not only are investors more focused on the short-term performance of their investments, they don’t really understand the nature of risk and have a hair trigger when it comes to volatility.
Although 66 percent of investors believe that their portfolios should help them achieve their life goals, only 34 percent say those portfolios should consistently meet investment criteria they’ve identified, such as a certain level of return.
They assign greater importance to short-term results than to long, with 16 percent saying that quarterly performance is “most important when considering an investment’s return over a specific time period” and a whopping 36 percent pointing to annual results.
Just 16 percent even consider 10-year results in evaluating performance, with 17 percent looking at five-year results and 16 percent considering three-year results.
Then there’s the nature of risk, which they don’t quite seem to grasp.
While 71 percent believe they can eliminate risk with a diversified portfolio, apparently not realizing that one cannot eliminate all risk from a portfolio, 53 percent believe that higher risk actually guarantees higher returns and 29 percent believe that all investments offer the same level of risk.
And volatility scares them, to the extent that 36 percent are ready to rebalance a portfolio because of market volatility.
That’s more than any other reason: nearing retirement (23 percent), a specific time of year (a birthday, year end or some other marker—just 21 percent), or life changes, like the birth of a child or death of a spouse (20 percent).
And of course the latter three reasons are what financial professionals consider sound reasons to rebalance a portfolio—as opposed to a roller-coaster market.
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