Investors Fear Portfolios Not Diversified Enough to Protect Against Volatility

Even though the stock market has experienced record highs recently, a survey by Edward Jones found that the majority of investors are concerned about market volatility taking hold within the next 12 months.

One-third of respondents said they believe their portfolios are not diversified enough to secure a comfortable retirement in light of a market correction. However, 55% of investors said they will not adjust their portfolios if the stock market declines more than 10%.

“It’s encouraging to see that investors aren’t making rash or emotional decisions when it comes to their investment portfolios,” says Kate Warne, principal and investment strategist for Edward Jones. “It’s important to remember that markets naturally peak and dip over time, fluctuating much more frequently than the U.S. economy. Having a well-diversified portfolio will work to hedge against market volatility, lessening the impact of inevitable corrections.”

But when it comes to near-term volatility, the survey found the most concerned are those belonging to Generation X (64%) and the Baby Boomers (75%). However, Millennials (37%) are nearly just as worried about their abilities to retire as their Gen X (32%) and Baby Boomer (35%) counter parts.

“It’s understandable that those closest to retirement would be concerned about how a market correction will impact their ability to retire comfortably, but others are concerned as well,” says Scott Thoma, principal and retirement strategist for Edward Jones. “Reviews are always important. But especially as investors approach their retirement, it’s critical to review their investments to ensure they are appropriately balanced relative to their income needs and comfort with risk, as well as ensure they have enough cash to cover their near-term spending needs. This will help ensure that in the event of any unexpected market volatility, drastic changes will not be needed.”

Recent studies have illustrated potential strategies for protecting retirement savings portfolios against market volatility including exposure to alternative assets such as real estate. Considering research indicating that participants are worried about outliving their assets, rising health care costs and whether they will be able to retire at all, the industry is also taking a closer look at in-plan lifetime income. This may ensure participants receive a steady stream of money in retirement regardless of how the market plays out. When implemented correctly, these strategies can be especially effective considering dismal long-term return assumptions.

The Edward Jones survey was conducted by ORC International’s Telephone CARAVAN Omnibus among a nationally representative sample of 1,006 respondents from August 24 to 27, 2017.