Four years after the onset of the global financial crisis, investors are still wary of equity investing, even for long-term investors who say that saving for retirement is their top financial priority.
In an online survey of 850 adults in the U.S. between the ages of 21 and 50 with at least one invested account, 61 percent believe that investing in stocks is very important or important in helping them achieve their retirement savings goals. T. Rowe Price conducted the survey in August 2012.
A little more than half of investors surveyed said they have roughly the same risk tolerance they had before the financial crisis, but 37 percent said they refrain from investing in stocks because of current economic or market conditions.
Investors’ reluctance to invest in stocks is reflected in data from the Investment Company Institute, which shows that net new cash flow into stock mutual funds was negative in 30 of the last 48 months, including 15 of the last 16, through September 2012.
Investors' aversion for stocks stands despite historical evidence showing that stocks, as measured by the S&P 500 Index, have outperformed other asset classes with an annualized total return of approximately 9.8 percent between 1926 and 2011. Over the course of a long-term retirement savings program, an under-allocation to stocks could lead to shortfalls in investors' account balances, T. Rowe Price financial planners believe.
Eighty-one percent of investors surveyed said they are saving about the same or more than they were before 2008.
"Investors have experienced a lot of market turbulence and tough economic times over the last several years, so it's understandable from an emotional perspective that many of them – including younger investors – might be reluctant to invest in stocks,” said Stuart Ritter, a senior financial planner with T. Rowe Price.
“But people with decades to go before retirement need to do their best to block out the noise of the day and focus on the long term. For investors with a long time horizon and enough tolerance for volatility, stocks have always been the best asset class for growth potential and for staying ahead of inflation."
T. Rowe Price is a global investment management organization with $574.4 billion in assets under management as of Sept. 30, 2012.