Baby-boomer investors are reducing their equity exposure to avoid global market volatility, and risk missing out on market recovery gains, according to Colonial First State Global Asset Management (CFSGAM).
The company’s August 2016 Investor Insights report has shown that volatile markets and political uncertainty are playing key roles in driving behaviour among investors born between 1946 and 1964.
Older ‘boomers’, born between 1946 and 1955 were found to be more reactive to volatility, tending to reduce their exposure to growth assets during down-turns, which CFSGAM cautioned could have a negative impact on portfolio returns.
“While they reduce their vulnerability to capital loses close to retirement, they may also lock in their losses and are likely to miss some of the gains in the recovery when their portfolio is less exposed to equities,” the company said.
CFSGAM economic and market research analyst Carlos Cacho noteda “recent pick-up” in equity exposures among the older members of the baby-boomer generation, which he said could be in response to their approaching retirement.
“As boomers get closer to retirement and realise they may not have sufficient savings for a comfortable retirement, they may look to increase their exposure to growth assets as a way of trying to make up this shortfall,” he said.
Figures from the CFSGAM/University of Western Australia Equity Preference index showed a decline of 3 per cent for the second half of 2015, only a third of the 9 per cent drop seen in the first half of the same year, but Mr Cacho said this could be “a reflection of the already low allocations towards equities”.
“When considering the level of investor sentiment towards equities compared to history, it may just be that they cannot decline much further without negatively impacting an investor’s ability to accumulate superannuation,” he said.