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UBS Investor Watch finds confidence improves as investors redefine risk

New York | | Media Releases Americas | USA

Report also finds long-term care trumps retirement as top concern for investors of all ages

NEW YORK, NY – (BUSINESS WIRE) – UBS Wealth Management Americas today released its third UBS Investor Watch report, revealing a pragmatic investor embracing the “new normal”. The survey of high net worth and affluent investors found 64% of investors say their financial situation is “excellent” or “very good”, up considerably from six months ago (44%). This optimism and confidence is coupled with a pragmatism and a new outlook that redefines risk.  The survey found 41% of investors define risk as permanent portfolio loss.  This is very different from how the financial services industry has historically defined risk – using terms like volatility, standard deviation and other jargon. 

“After the 2008 financial crisis, there was much discussion about the ‘new normal’ - a more reasoned and grounded approach among American investors.   Many wondered how long this would last, particularly as investors historically displayed tendencies towards amnesia, forgetting about past losses when markets rebounded. However, based on the latest insights from UBS Investor Watch, it appears that the ‘new normal’ is here to stay,” said Emily Pachuta, Head of Investor Insights. "Even as they see the economy and their own financial situation improving, today's investor remains focused on avoiding risk as a way to help achieve their financial goals – and this holds true even for younger investors."

Optimistic, Pragmatic and Avoiding Risk

The survey found the majority (52%) of investors feel their finances are better than a year ago, up significantly from 40% in January. Despite greater optimism and key indices closing at record levels, investors are not rushing back to the markets: they are content with current and significant cash positions (22% on average), and few investors (26%) say they plan to reduce the cash they have. Asked about portfolio risk, 70% of investors say they are more concerned about avoiding losses than missing out on market gains (30%).

Top Concern: Long-term Care

Being able to afford the health care and the support needed in old age remains the top personal concern (31%, up from 26% in January) for investors of all ages. Interestingly, long-term care remains a greater concern than retirement (16%).  Asked what was most important to them as they age, 44% investors said remaining self-reliant, followed by 38% who are focused on preserving their quality of life.

Despite their concerns, a majority of investors are not prepared for managing their long-term care needs. Only 37% feel highly prepared regarding their long-term care needs, compared with 64% who feel highly prepared with their retirement planning. “While the ‘new normal’ mindset should help investors deal with this growing issue, long-term care appears to be the next challenge many will need to face,” said Pachuta. The survey found that 39% of investors aged 25-49 are looking for guidance relating to funding long-term care.

“Good Debt” vs “Bad Debt”

With both individuals and the government needing to reduce debt levels in the wake of the financial crisis, a significant portion of investors have become more averse to borrowing (29%). However, most investors are similarly pragmatic in their views on personal borrowing – believing there is "good debt" and "bad debt."

"Good debt" is associated with making a sound investment, such as a mortgage on a primary home, paying for education or short-term borrowing to avoid selling an asset that is expected to appreciate or to avoid realizing a large capital gain. Investors indicate they view “bad debt" to be a sign of living beyond one's means or borrowing for luxuries, such as not paying off a credit card balance, borrowing from friends and family, having a second mortgage on one’s home and even having a mortgage on a second or vacation home.

The Gender Difference

Longer lives create unique challenges for women, particularly relating to long-term care, retirement and the future of government provided social services. The survey found that women are more concerned about the future of Social Security (44% compared with 30% for men), being able to afford long-term care (37% compared with 27% for men), having someone to care for them in their old age (25% compared with 13% for men) and outliving their assets (22% compared with 12% for men). Women are considerably more worried about the sequester overall (32% highly concerned compared with 23% of men), the sequester’s automatic cuts to Medicare and other non-defense programs (55% compared with 41% of men), possible changes to Medicare (55% compared with 44% of men) and Social Security (54% compared with 40% of men), and a potential negative impact of the sequester on their ability to achieve their goals (30% compared with 22% of men).

Highlights from the April 2013 UBS Investor Watch report include:

  • Washington worries: U.S. political/economic issues dominated investors’ concerns with 73% saying they were extremely/very worried about the political environment in Washington. Rising health care costs (64%) and the size of the U.S. national debt (60%) followed respectively, with Middle East unrest (44%) and increase in taxes (43%) rounding out the top five.
  • Paying down the national debt burden: Seven in ten (70%) investors feel the tax increases in the “'fiscal cliff” deal were about right or should have been higher, and nearly six in ten (59%) expect there will eventually be more tax increases to help address the national debt issue. Surprisingly, older investors are more willing to pay additional taxes to reduce the debt burden for future generations (35% agree while 25% disagree), likely because they have been less impacted by the recent tax policy changes, while younger investors are less willing (27% agree while 34% disagree).
  • Age and outlook: Investors under 50 are less optimistic about the short-term outlook (40% compared with 49% for investors over 60) and are less likely to believe the U.S. economy is strengthening (32% compared with 43%). Younger investors are also more worried about financial markets (32% compared with 20%), continuing market volatility (34% compared with 22%) and real estate prices (23% compared with 12%). Younger investors also feel the impact of the recent tax policy changes and are more worried about future tax increases. Over half (51%) of investors under 50 are highly concerned about more tax increases, compared with 39% of investors over 60.

About UBS Wealth Management Americas

UBS Wealth Management Americas provides advice-based relationships through financial advisors who deliver a fully integrated set of products and services specifically designed to address the needs of ultra-high net worth, high net worth and core affluent individuals and families. It includes the Wealth Management US business, the domestic Canadian business and the international business booked in the United States.

About UBS

UBS draws on its 150-year heritage to serve private, institutional and corporate clients worldwide, as well as retail clients in Switzerland. Its business strategy is centered on its pre-eminent global wealth management businesses and its universal bank in Switzerland. Together with a client-focused Investment Bank and a strong, well-diversified Global Asset Management business, UBS will expand its premier wealth management franchise and drive further growth across the Group.

UBS is present in all major financial centers worldwide. It has offices in more than 50 countries, with about 35% of its employees working in the Americas, 36% in Switzerland, 17% in the rest of Europe, the Middle East and Africa and 12% in Asia Pacific. UBS employs about 64,000 people around the world. Its shares are listed on the SIX Swiss Exchange and the New York Stock Exchange (NYSE).

Contact

Gregg Rosenberg    212-713-8842    gregg.rosenberg@ubs.com