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Decoding investor behaviour: Bridging the disconnect between hope and reality

The Legg Mason Global Investment Survey has been taking the pulse of investors worldwide for the past five years. Our goal is to better understand investors' hopes and fears, their financial dreams and realities, as well as what is influencing their behaviour - from the Global Financial Crisis to changing technology.

This year we found investors who are:

  • more optimistic about investment opportunities but still impacted by the long shadow of the Global Financial Crisis;
  • increasingly turning to technology to help them organise their finances and make investment decisions, but who still want to know there is a human behind the machine; and
  • not entirely sure what they need to retire comfortably, but feel that they have not quite met their goals.

This year's survey reached 15,300 investors in 17 countries across Europe, Asia Pacific, Latin America and the US - ensuring samples that are representative of the population of each country.

This programme will explore three key themes, at both the global and country level, over the course of 2017:

  • Perceptions vs Reality,
  • Humans vs Machines and
  • Youth vs Experience.

We aim to provide you with insight into not only investors' motivations, biases and behaviour, but also the fast-changing world which they must navigate.

Perception vs Reality:Is fear driving investor behaviour?

Investing must always be a balance between taking risk to secure your desired return and being cautious to protect your capital. Finding the right balance is tricky - and that place of balance will vary among investors.

But our survey found a worrying gap between investors' perceptions and the reality of their situations - usually underestimating the risk inherent in their investment choices. While this caution seems warranted considering the heavy losses many investors experienced in the Global Financial Crisis, now that markets have recovered investors may be more at risk of not taking advantage of the opportunities that are now on offer and hurting their long-term potential for strong returns.

Here we explore investors' perceptions - the biases that influence them, the forces that shape their behaviour - and the reality of their investment decisions.



What is the extent of influence of the Global Financial Crisis and subsequent recession on your saving and investment decisions?

  • Still strongly influenced
  • Still somewhat influenced
  • Not at all influenced
  • Don't know

Top 10 biases

Beliefs and ideas tend to be shaped by one’s personal upbringing and experiences, more so than by an informed, general and global view. The same applies to investment matters, leading most investors to make decisions based on what they know or what surrounds them, ignoring a whole universe of information that is available to them. This limits their opportunities, making their financial goals harder to achieve. Which are the most common investment biases? The Legg Mason Global Investment Survey has found a top 10.

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Gone but not forgotten

Despite one of the longest bull markets in memory, the Global Financial Crisis and the ensuing Great Recession may have permanently changed investor thinking. Millennials are now investing more like their Depression-era grandparents than their Boomer parents – despite their optimism about the future. What do these changes hold for the future of financial markets worldwide?

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Risk is on

After a decade of gloom in which investors mostly wanted to protect capital and invested in low, even negatively yielding bonds, they now seem to have woken up: 37% are planning to take on more risk in their portfolios this year. The investment options they are considering, however, are only a small portion of the global investment universe.

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How optimistic are you for your investments over the coming 12 months?(%)

Factoid

Humans vs Machines:Is technology really the silver bullet?

Technology is changing every aspect of our lives, and how we manage our finances and make investment decisions are not immune to this trend.

The increased use of online resources for information, of apps to help us manage our money and of products that invest our money on the basis of algorithms rather than human judgement are fundamentally changing the world of personal finance and investment.

Our survey found that while investors are increasingly open to relying on technology, they still desire the human touch. They want to know that there is a human behind the machine, guiding its application and providing the customer service that a machine never can.

Here we explore how the combination of humans and machines are working together to create the user experience and investment outcomes that today's investors now expect.


Do you agree with the following statements?

The Bionic Plan

Technological change always alters traditional ways of doing things, most often for the better. Technology is currently bringing that opportunity to the financial advice industry in rapid fashion. By effectively combining the capabilities of technology with relational skills, industry knowledge and experience, financial professionals can empower their clients. And working together, they can build better relationships and stronger financial plans.

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The human touch: Irreplaceable

The charge toward automation of large swaths of the investment business threatens to leave customers cold, with most favouring human interaction for the giving of financial advice and assistance with making critical investment decisions. Though technology for activities such as research and execution is accepted by many, a strong majority still favours purely human – or technology-assisted human interactions. Surprisingly, this is also true of Millennials, despite their reputations as natives of the digital world.

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Technology game: EMs 1 – DMs 0

Emerging market investors - led by Asian millennials - are well ahead of the curve in terms of technology use when making or executing investment decisions. Technological empowerment is crucial in a fast-changing world, but so is the need for professional advice, which, according to the survey, will never die.

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Do you use websites or apps for these areas of personal finance? (%)

Factoid

Youth vs Experience:Will millennials be better prepared for retirement?

The Baby Boom generation is thought to have had it all - years of equity and bond market bull runs, getting on the property ladder before prices rocketed, and benefitting from defined benefit pension schemes, guaranteeing them a level of security in retirement.

For Gen Xers and Millennials, the goal of a comfortable retirement seems further out of reach, and secondary to more pressing financial goals such as paying off student debt and owning their own home.

Yet our survey found that far from being in or approaching retirement with life goals met and financial security attained, Baby Boomers say they have many goals unmet and are worried that they will not have the income they need for a comfortable retirement.

Here we explore why Baby Boomers find themselves in this predicament, what they can do to improve their situations and how Gen Xers and Millennials can avoid falling into the same traps.


Thinking about your retirement goals, which have you achieved and which have you yet to achieve? (%)

Not yet achieved Not yet achieved
Already achieved Already achieved
Airplane 0

Travel extensively

Piggy bank 0

Enjoy a good retirement income

Bill 0

Maintain pre-retirement standard of living

Globe 0

Live abroad

Palm tree 0

Have a holiday home

Coins 0

Be debt-free

Cardiogram 0

Have access to good healthcare

Businessman 0

Keep working / I don’t want to retire

Tree 0

Volunteer for good causes and charities

Airplane 0

Travel extensively

The High Price of Prudence

As befits their age, Millennial investors as a group are ambitious, optimistic and outward-looking. Yet over 70% call themselves "conservative" investors, and they have the same inclination to save rather than invest, and to keep cash levels high. The cause could be the lingering influence of the Global Financial Crisis and Great Recession. But these conservative practices could prevent them from using their most important investment tool: time, which they have in relative abundance.

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How real is the global retirement crisis?

Experts around the world worry that investors are not saving enough for retirement, and may not be taking the risks necessary to close the gap. Are things really that dire? Our survey indicates that savings in DC plans are well behind what investors are likely to need later in life – yet, surprisingly, on track with expectations in all but a handful of countries.

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Not so rockin’ retirement

Baby Boomers may have had it all in their youth, but many have yet to achieve basic retirement goals like being debt-free. Younger generations can learn from the Boomer experience, but they also face a much different investment landscape. They must act now, while time is on their side.

read

Retirement goal: Make sure that I am debt-free

Factoid

Nordics findings

March of the machines

Swedish investors are the most likely investors in Europe to go online to plan their finances and the least likely to rely on face to face professional advice to find information about their long-term savings and investments.

Percentage of people using websites to access their brokerage firm, fund manager or personal finances

Little trust

The Swedish are some of the most progressive Europeans in their savings behaviour and investment decisions, but high numbers are reluctant to trust advisers. At least part of the reason appears to be a high reliance on online sources of information and robo-advice.

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Data tables

2017 summary of global results

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2017 summary of Swedish results

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BACKGROUND & METHODOLOGY

Market Sample size
United States Total: n=900
High net worth: n=275
Europe (UK, France, Spain, Italy, Germany, Switzerland, Belgium, Sweden) Total: n=7,200
High net worth: n=1,371
Asia (Hong Kong, Singapore, Japan, Taiwan, China) Total: n=4,500
High net worth: n=1,230
Latin America (Brazil, Mexico) Total: n=1,800
High net worth: n=260
Australia Total: n=900
High net worth: n=306

This year's survey reached 15,300 investors in 17 countries across Europe, Asia Pacific, Latin America and the US - ensuring samples that are representative of the population of each country. Respondents are aged 18-74, have some income, are employed (unless retired) and are the sole or joint decision-maker for household investment decisions. Fieldwork was conducted through an online panel between January 12th and February 10th 2017. The high net worth criteria in the U.S was set at $225,000+ in investable assets and individual country equivalents were set. Of the total sample, 3442 qualified as high net worth. There was also a fairly even split between the generations: 5,116 Millennials (18-35), 4,898 Gen X (36-52), 4,925 Baby Boomers (53-7).

Cicero Research:

The research was conducted by Cicero Research, a leading consultancy firm servicing clients in the financial and professional services sector. Cicero specialises in providing integrated public policy and communications consulting, global thought leadership programs and independent market research. Cicero was established in 2001, and now operates from offices in London and Brussels. http://cicero-group.com/

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