Today’s youngest investors want and can handle the most risk, right? Wrong! This long-held belief is based only on the long recovery times young investors have. However, this strategy contradicts the fact that most young investors want conservative growth.
According to a recent Cerulli Associates study, only 7% of millennials want aggressive growth early in their investing careers. Two-thirds of those surveyed want to be more conservative, and 77% of all participants said they prefer to “protect my portfolio from significant losses, even if it means periods of underperforming the market.”
So why haven’t the large TDF shops asked investors of all ages how they really want their money managed? Why are the first-generation TDFs stuck with this egregious assumption? Plan advisors, what liability do you have in going along with this assumption?
The issues with the current TDF options on the market affect every age group. It’s our job to listen to them, and provide appropriately for all of them.
Break With Past
We all invest to better our futures. We’re only human, and if there’s a threat to our future, we tend to react emotionally. Above all, investors want steady growth during good times and for their advisor to protect them against large losses in bad times.
A smart investor knows a good advisor’s job is to prevent the investor from doing the wrong thing at the worst time. We can’t protect against all losses, but we seek to shelter the majority of our clients’ capital through smarter TDFs.
Portfolio construction needs to be aligned with investor expectations in all market environments. We must deliver what investors expect and want: portfolio growth, defensive capabilities designed to kick in only when necessary and unbiased guidance.
This article was contributed by David Haviland, managing partner and portfolio manager at Beaumont Capital Management, a participant in the ETF Strategist Channel.