Falling investor sentiment has seen women and older investors shifting away from shares, potentially risking their financial security in retirement, writes Belinda Allen.
Over the past few years, many commentators have speculated that the global financial crisis (GFC) has dented Australians’ enthusiasm for shares, perhaps permanently. Now there’s proof, thanks to Colonial First State’s new Equity Preference Index (EPI), introduced in collaboration with the University of Western Australia Business School.
The EPI uses actual behaviour to track changes in investor sentiment, combining data in a single index from hundreds of thousands of Colonial First State managed fund and super investors. By analysing the way Australians have shifted their money into and out of share-based fund options, it gives us an accurate reading on their attitudes towards the sharemarket, as revealed through their actions.
The EPI shows that investor sentiment continues to play a large role in the performance of Australian shares, with sentiment weighing on the market since the GFC. But it also reveals stark differences in investor sentiment between the genders and different age groups.
Here are some of our key findings.
Are women the smarter investors?
*Includes First Choice (Investments, Personal Super, both retail and wholesale funds) and Managed
Investments (excludes automatic rebalances, withdrawals and additions).Our analysis of switching behaviour suggests that women are more sensitive to current changes in market performance than men, making them more likely to switch in a way that locks in both gains and losses. Looking at the dotted blue line in the graph above, we see that male investors were actually more circumspect between 2005 and 2009, switching money out of equities even as the sharemarket rose, despite a stronger overall preference for shares then women. In other words, men follow leads in the market more closely than women, who are more cautious.
Looking at the solid pink and blue lines, which take into account new investors (applications) and departing investors (redemptions), we get a slightly different picture. Even after the GFC, men continued to put more money into shares than women, with women reducing allocation to shares.
One reason could be changing labour market trends. Since the GFC, the jobs market for women has been slower to recover than the jobs market for men, with male unemployment falling 17% since June 2009, while female unemployment has risen by 3%.
But women’s cautious investment behaviour, coupled with a lower average superannuation balance than men, adds to rising concerns that women may not be able to meet their retirement income goals without substantially increasing their savings.
Older investors seek security
What about different age groups? Here the pattern is pretty much as you might expect, with older investors much less interested in shares than their younger peers, but with a few interesting twists.
Those under 35 (the red line in the graph) have generally maintained a higher and growing preference for shares throughout the GFC, revealing their higher appetite for risk. The middle age groups from 35 to 49 (the orange line) and 50 to 59 (the green line) are much more circumspect, although they have shown bouts of positive sentiment towards shares.
Interestingly, these two groups seem to act in similar ways, much more than you would expect given their 25 year age difference. Overall, the survey suggests that they are dormant share investors, people who had a preference for shares when returns were good and who are now waiting to see whether their initial love for equities prior to the GFC was correct.
It’s also in these age groups that we see the biggest differences between men and women, with women adopting a much more conservative approach to investing than men. Lifestyle factors do come into play here, with many women taking time off to care for growing families, even as their male partners approach their key earning years. But once again, this raises questions about the adequacy of women’s retirement savings.
Are we saving enough?
For now, it remains unclear whether the lower preference for shares revealed by the EPI is permanent or temporary. If it’s temporary, we would expect to see money flow back into share-based options once the market recovers and shows signs of stability. But if it it’s permanent, that may have significant implications for the financial security of Australians in retirement, particularly older women.
Today Australians are living longer and staying more active in retirement than ever before, making it particularly important to focus on building retirement savings. Cautious investors who permanently allocate out of shares could find themselves scrambling to catch up in future. Paradoxically, a desire to avoid risk now could see them facing the biggest risk of all: the risk of running out of cash in retirement.
Written by Belinda Allen, Senior Analyst, Investment Markets Research with Colonial First State.
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Disclaimer
This document has been prepared by Colonial First State Investments Limited ABN 98 002 348 352, AFS Licence 232468 (Colonial First State) based on its understanding of current regulatory requirements and laws as at 30 July 2012. This document is not advice and provides information only. It does not take into account your individual objectives, financial situation or needs. You should read the relevant Product Disclosure Statement available from the product issuer carefully and assess whether the information is appropriate for you and consider talking to a financial adviser before making an investment decision.
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