Investors Wary of Managing Market Risk
Americans are struggling with market risk, finds new research out today from Jackson National Life Insurance Company and the Center for Retirement Research at Boston College.
In its “Security in Retirement Series,” Jackson created its proprietary Market Risk Vulnerability Index to evaluate investors’ financial positioning with spending, savings, cash allocation, stock-bond split, and diversification. Based on how many of the benchmarks were met, investors were scored as low-index, or least vulnerable to market risk, and medium-index or high-index, at most vulnerable to market-risk.
It found that 57% of high-index investors spend over 50% of their income on basic needs, compared to just 5% of low-index investors.
Most investors did not meet key benchmarks of general financial health, including having an appropriate cash allocation, retirement savings targets, or asset diversification. Only 14% of high-index investors met the recommended asset diversification benchmark.
Risk-averse investors were among the most vulnerable to market risk, with ideal cash holdings averaging 49% of total assets—or more than double the recommended 20% threshold—and lacking diversification in their investments.
“Our findings challenge the traditional notion that avoiding risk equates to financial security,” said Glen Franklin, assistant vice president of Research at RIA and Lead Generation Strategy for Jackson National Life Distributors LLC (JNLD), the marketing and distribution business of Jackson. “The research underscores the importance of aligning financial behaviors with long-term goals and highlights the value of working with a financial professional to help build resilience against market volatility.”
Those who balance risk-taking, like favoring diversification and moderate equity exposure, were likelier to achieve better outcomes, the research showed. These investors also tended to use index mutual funds and exchange-traded funds (ETFs), further curbing investment risk.
Andrew Eschtruth, director of the CRR at Boston College, notes that usage of target-date funds in workplace retirement plans can promote long-term security while managing overall risk.
“Another key takeaway from this new survey data is that the widespread use of target date funds as a default option in 401(k) plans can help offset misperceptions held by individual investors,” he said. “Investors tend to prefer lower stock allocations than professionals recommend due to overly pessimistic views of stock returns and risk, so nudging them toward higher allocations can improve their long-term financial security.”
Offering guaranteed lifetime income options may also curb fears of market exposure, the research observed. According to the findings, high-index investors were more than twice as likely as low-index investors to cite longevity risk as a major concern (56% vs. 27%) yet are less likely to organize a plan addressing the fear.
Of the financial professionals surveyed in the research, 61% use annuities with guaranteed income to manage investment risk for clients in retirement.
The research, fielded between October 15-29, 2024, included online surveys of more than 1,000 investors with at least $100,000 in financial assets between the ages of 48 and 78 years. An additional online survey of 400 financial professionals was conducted between November 4-18, 2024, with respondents being client-facing financial professionals with at least 75 clients.
SEE ALSO:
Investors Turning to Alts as Confidence in Stock Market Declines
Financial Optimism Rises Among Advisors and Investors
Personalized Solutions Could Meet Needs of Aging Investors
Amanda Umpierrez is the Managing Editor of 401(k) Specialist magazine. She is a financial services reporter with nearly a decade of experience and a passion for telling stories and reporting news. She is originally from Queens, New York, but now resides in Denver, Colorado.
