Australians are vastly more conservative investors than their global counterparts, and may be missing out on key opportunities to improve returns, according to Legg Mason’s 2015 Global Investment Survey.
The survey, which looked at the attitudes of over 4,200 affluent investors in 20 key markets, found Australian investors were particularly conservative and unwilling to take on more risk for the chance to boost their income.
Overall, 77% of Australians described themselves as somewhat or very conservative, compared to the global average of 59%. Only 29% of Australian investors were willing to increase their risk tolerance for the opportunity to earn more income, compared to 66% of global investors.
Legg Mason’s Global Head of Distribution Marketing, Matt Schiffman, said the results demonstrated a shift in priorities as a greater proportion of Australian investors grow closer to retirement.
“Australians as an investor group are less willing to consider risk as an option to grow their wealth and boost their income”, said Mr Schiffman. “With a growing number of local investors either in or reaching retirement, focus has shifted towards protecting their assets in years to come, and avoiding big drawdowns in the event of a market decline.”
Retirement dominates Australian investor concerns
The survey also identified that Australian investors mainly invest to ensure a comfortable, independent retirement. Asked what their primary investment goals were, 71% of respondents said their goal was to maintain a comfortable lifestyle later in life, while 58% said it was to avoid depending on others in retirement.
Just 51% of respondents said their key goal was to grow their wealth, indicating a shift in priorities from capital growth to income generation among the Australian investor cohort.
When asked what might derail their goals, 36% of respondents were still fearful of another global market correction, while 32% said their biggest concern was not saving enough for retirement. A further 32% were concerned about outliving their retirement funds.
Australian investors were also currently struggling to achieve desirable income yields on their investment. Respondents expected an average 8.6% annual return on their investments, but were currently getting closer to 6.6%, indicating a ‘reality gap’ of 2% between actual and expected returns.
“It’s interesting to note that while Australian investors are very focused on retirement when it comes to structuring their portfolios, they are also concerned that their current allocations are not going to be enough to sustain their future needs”, said Mr Schiffman. “As they grow older it seems local investors are struggling with balancing market risk and longevity risk, and they may not feel they have the investment tools available to adequately deal with these issues.”
Australians still favour property above all else
Australian portfolios display a pronounced bias toward property, with local investors allocating an average of 27% of assets to investment real estate compared to global investors’ 16%. Australian investors also allocated significantly less to equities, at 20% of total assets compared to 28% for global investors.
Australians were also less interested in investing outside of their home market. Only 36% said they would be increasing their focus on international investments in the next year, compared to 67% of global investors.
Australian investors also believe diversifying out of their home market would not have helped them achieve better returns – when asked what they would do differently if they could invest all over again, only 7% of respondents said they would be more diversified globally, compared to 30% of investors across all markets. Instead, Australians nominated investing too late as their biggest investment regret, with 51% saying they would have started investing earlier if they could turn back time.
“Australians are much more comfortable investing at home than abroad, and they continue to be particularly attracted to property, perhaps because of the associated tax efficiencies and recent price growth in key markets,” said Mr Schiffman. “However, their bias towards one particular asset class could mean they are missing out on key sources of capital growth and income.”
Australian investors less confident about the future
The survey indicated that Australians as an investor group are significantly more pessimistic about their investment progress than global investors as a whole.
While 78% of investors worldwide said they were progressing well towards not depending on others in retirement, only 50% of Australians said they were progressing well against this goal. Only half of Australian respondents said they thought they would be able to maintain their current lifestyle later in life, while 75% of global investors thought they would be able to achieve this goal.
Mr Schiffman said the findings demonstrated Australian investors were not as optimistic when it comes to the future investment environment. “Despite several years of healthy returns and strong economic growth, Australians are still not convinced that their investments are progressing as they want them to. This may be an indication that, especially given the current low interest rate environment and their preference for conservative products, they may need to start to broaden their horizons if their investments are going to progress to the high standards they hold them to.”
Source: Legg Mason
