How Personal Investing has Changed since 2009

Many investors were awoken from their monetary slumber when the economic crisis of 2008-2009 occurred. No longer was it viable to keep mindlessly purchasing blue-chip stocks or keep one’s life savings in CDs at a local bank. The shock of seeing the tremendous losses in retirement accounts shocked many investors into shifting whatever remained into more secure instruments, despite their low yield.

In fact, investment as a whole took a nosedive. According to the Economic Policy Institute, since the second quarter of 2009, investment is down 20 percent from peak levels. The fact is the average investor isn’t sure where to put his or her money to ensure its safety, having taken a big hit with the economic downturn.

Risk averse flood the bond market

One noticeable change in investment trends since 2008 has been the huge surge in bond sales. According to a study done by MFS Investment Management, “This year investors have flooded into bond funds with $216 billion in net flows, while pulling out $18 billion net from equity funds, at a time when a more balanced approach to both asset classes might be more prudent,” noted its Director of Global Retail Marketing. While bonds may assure investors of more safety, they (like banks) do not offer sufficient return to keep up with inflation.

Of the investors studied, a full 43 percent indicated they are more risk adverse since 2008, often seeking to find a better place for safekeeping their principal. This is a big change in attitude from pre-2009 levels when only 14 percent felt this attitude was beneficial for their long-term benefit (and measured risk did not have a bad name).

Attitudes and behavior

Many investors (85 percent) worry that another serious economic downturn is possible. Despite this belief, and taking into account that there has been a move away from stock to bonds, many more investors have done nothing to change their asset allocation. Less than 4 in 10 investors have changed their investment portfolio since 2008. Nor, apparently did they seek out more professional advise.

Does this mean that personal investing has taken a head-in-the-sand turn? Clearly, a majority of investors are worried, but not many are taking “corrective” action to protect investment assets.

Investing for retirement

While building wealth through investing is an issue that can be delayed for another day, perhaps the most pressing issue since the 2008 economic downturn is the state of retirement preparedness. More than half of those surveyed (54 percent) indicated that they may not be ready to retire at the age they had originally planned. Increasingly, too, investors are lowering their expectations about what sort of “golden years” they might be planning for.

Worrisome as well is the fact that 44 percent of those surveyed do not know how much they will need for retirement. With the economic constraints of the financial crisis, one-fifth of Baby Boomers have reduced their retirement contribution. Risking the erosion of their retirement (secured by dollar-cost averaging and compounding interest), they have little choice given their financial circumstances. A full third recognize that the only choice may be to work longer.

What should investors be doing?

Given the economic hardship being experienced by so many investors across the country, what steps should they be taking to protect their portfolios? The principles of good investing remain the same: diversification and a steady building of assets. What is more important than ever is attention to detail.

Rushing into bonds (at the cost of stock purchases) is not necessarily a smart move for the long term. Purchasing stock from domestic companies with little risk overseas (with strong balance sheets and growth potential) still offer a good opportunity, one that is likely to exceed the earning rate of bonds during this economic downturn.

A balance of stock, bonds, and precious metals, along with constant monitoring of changes in the market is the best approach for any investor. Those nearing retirement should make every effort not to cut or dip into retirement savings, which have likely already been reduced as a result of the economic crisis.

Finally, success in investing depends on flexibility and awareness. No amount of ignoring the market will make the results any brighter. Those who seek to maintain and grow their portfolios must be ever vigilant and flexible to secure their financial future.