There is a disconnect between the life goals of over 50s and the risks they were prepared to take to achieve them, according to researchers for Seven Investment Management and the London Institute of Banking and Finance.
The study identified four main risk personalities:
Stay on dry land – 42% said they try to minimise investment losses (between 1 and 2 on the riskometer).
This was fairly consistent across age groups, breaking down to:
- 40% of 50-59 year olds
- 43% of 60-69 year olds
- 43% of 70+ year olds
Don’t rock the boat – 36% considered themselves more balanced investors (number 3 on the riskometer).
They sat half way between wealth preservation and wealth creation and was also fairly consistent across age groups, breaking down to:
- 36% of 50-59 year olds,
- 35% of 60-69 year olds
- 37% of 70+ year olds
Jet skiers – 16% were fairly adventurous, and were more prepared to maximise potential investment returns (number 4 on the riskometer).
This, again, was similar across the age groups, breaking down to:
- 17% of 50-59 year olds
- 16% of 60-69 year olds
- 15% of 70+ year olds
Scuba divers – 6% were not just happy to rock the boat, but to jump out of it completely, and throw off the jet skis too, saying they always tried to maximise potential returns (number 5 on the riskometer).
Broken down across the age groups, this was:
- 7% of 50-59 year olds
- 6% of 60-69 year olds
- 5% of 70+ year olds
Peter Hahn, dean at the London Institute of Banking & Finance, said it was not about pushing clients into high risk it was about taking some risk to reach objectives.
Saving ‘smarter not harder’
7IM’s Matthew Yeates argues many clients would be best served by “saving smarter not harder”.
“Increasing or maintaining risk as retirement approaches absolutely won’t be for everyone – but nor will reducing risk,” he said.
“By the time a person is 50 years old, with the impact of compounded investment returns over time, the size of their retirement pot will have had a good chance of exceeding their annual salary.
“In this case, much larger sums of money would need to be saved if you wanted to grow your pension pot by 1%, and this is where even modestly increasing your potential investment returns can have a greater impact.
“With greater returns also comes the potential for greater loss, but it is worth thinking about the potential implications of even small adjustments in risk.”
Yeates argues swathes of the investing public close to retirement are saving harder than necessary and automatically de-risking too early when the opposite might be more effective.