Firm grasp on reality

Capital depletion has heightened people's sense of vulnerability and led them to re-evaluate risk.

Capital depletion has heightened people's sense of vulnerability and led them to re-evaluate risk.

How much of my money should I keep in cash? That's the most common question many financial advisers are hearing as investors struggle in the uncertain economic environment.

BT Financial Group has almost 1200 advisers providing about 2700 pieces of advice a week and has identified the 10 most common questions investors are asking.

The general manager for advice at BT, Mark Spiers, says at the heart of these questions is a desire to reduce risk and for investors to shield themselves from further losses.

He says many investors are suffering from post-traumatic investment disorder, and have a heightened sense of vulnerability when it comes to their investments. Concerns about Europe's economies, and a recognition that the structural changes occurring in the global economy will continue for an extended period, have led them to re-evaluate risk and to seek more help in managing their investments.

Spiers says five key themes are coming through from investors: a higher level of engagement with their investments ("They're wanting to know where their money is, not just how much they've got"), a re-evaluation of risk, greater awareness of longevity risk by people in or nearing retirement, taking control, and the need for trust to be restored. He says there is a tug-of-war between whether to pull money out of shares and put it into cash, or to invest more in shares to try to recover money that has been lost.

"There are two pools of investors, who are going in opposite directions," he says. "There are people exiting the sharemarket and people in cash who are going into shares and chasing yield. The dilemma is that some are saying they can't afford to lose any more. Their money has to last until they're 85, but do they pull the rest out and keep it in fixed interest or put more into the market to try to recover the capital depletion?"

Spiers says while the advice is generally to take a portfolio perspective and not to panic at the latest news, many investors are still nervous and averse to risk.

An adviser with Westpac Financial Planning, David Simon, says it is worth noting that some markets, including the US, are already close to their previous highs and while the US market did not regain its 1929 peaks until November 1954, the Dow Jones Index delivered an average annual return of 5.3 per cent compounded over the 20th century.

And should you have more money in cash? An adviser with Securitor, Paul Kearney, says your baseline cash holding should be enough to prevent you from having to sell other investments when prices are down. Rather than thinking of the "right" level of cash as a percentage, he says it can help to think in terms of how many years' income you need to hold in cash.

The top 10 questions investors are asking

How does the situation in Europe affectmy investments?

What will happen if Greece falls out of the euro?

How can I reduce the risk inmy

portfolio while still achieving my goals?

Should I stay in cash, and how much money should I keep there?

What is the right mix of growth

and defensive assets in this environment?

Should I stay in shares?

Should I reducemy holdings of growth investments?

Can shares play a role in providing me with income?

How can I get more income from my investment portfolio?

Will the market recover to its 2007 levels?

Source: BT Financial Group

Join the Conversation...

There are comments posted so far.

If you'd like to join this conversation, please login or sign up here

Related Articles