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Despite a bullish outlook on the market, plan participants are becoming increasingly conservative with a preference for fixed income without a solid understanding of its role in their portfolio, according to the most recent survey of US workplace retirement plan participants released today by State Street Global Advisors (SSgA), the asset management business of State Street Corporation (NYSE: STT).
Five years after the global financial crisis, survey respondents are positive about the market and investing. Almost eight in 10 respondents who invested during the market downturn said they are contributing as much as or more now than they did five years ago and responses to open-ended questions suggest that their experiences taught them an important lesson about the cyclical nature of the markets. Their responses are especially noteworthy given generally weak wage growth and increased job uncertainty. Other findings include:
Seventy-six percent say their DC plan is the same or in better shape than five years ago
Seventy-eight percent think that in five years the market will be the same or in better shape than it is today
Seventy-nine percent have maintained or increased their contribution levels since the crisis
Despite this confidence, the survey uncovered indications of a shift toward more conservative investment behavior. Although investors traditionally invest more aggressively as their optimism increases, 49 percent are currently investing more conservatively than they did five years ago and only seven percent of DC investors indicate that they are taking a more aggressive approach.
“Plan sponsors need to recognize participants’ new conservative mindset and design a plan menu that helps them invest to meet their financial goals,” said Fredrik Axsater, senior managing director and global head of defined contribution, SSgA. “Participants are afraid of losing their retirement savings and are shying away from making more aggressive allocations. This is particularly concerning for younger investors who may not understand how a conservative approach can limit the growth needed to fund retirement.”