Retirement Investors Need to Understand Role of Risk

Seventy-three percent of American investors tend to avoid risk entirely or weigh risk very carefully when engaging in financial decisions, according to the Financial Risks & Investor Attitudes study by Ameriprise Financial.

The study found 31% of investors surveyed are what Ameriprise calls Risk Avoiders, who are the most guarded when it comes to financial risk-taking. Eighty-nine percent of this group view their outlook on risk as “cautious.” But, while nearly half (42%) of respondents in this profile claim they are not willing to take risks with their finances, many are unknowingly increasing their exposure to risk, Ameriprise says.

The study found many people in the Risk Avoiders group report being underinsured, only make investments with guaranteed returns, and some store their savings in cash. This group is also less likely to conduct the research necessary to help mitigate risk. The majority of Risk Avoiders are Baby Boomers and female (61%).

Forty-two percent of investors surveyed are what Ameriprise calls Risk Mitigators. Investors in this profile characterize themselves as willing to take risks after significant research (89%), but also associate risk with loss or uncertainty in their investment outlook. Risk Mitigators are more engaged in actions such as diversifying investments and being sufficiently covered by health and life insurance. However, they remain uncertain about their approach to investing and risk.

Risk Mitigators prefer low-risk investments and shift to conservative choices during periods of market volatility—decisions that may not always be in their best interest. Demographics in this group are fairly evenly split between Millennials, Gen X, Baby Boomers, and among gender.

One-quarter of investors surveyed are what Ameriprise calls Risk Managers. All these individuals see financial risk as an opportunity. Consumers who fit this profile are willing to take informed risks after conducting research and focus on growing their retirement savings through investing. They pursue well-thought-out risk mitigation strategies, such as assessing financial decisions along with diversifying and balancing investments.

Nearly half (45%) of Risk Managers invest heavily in the stock market, and the majority report understanding the details of their 401(k) plans. Risk Managers are predominately male (61%) and are represented equally across the three generations surveyed.

Just 3% of investors surveyed are what Ameriprise calls Risk Embracers. They are highly motivated investors, many of whom associate financial risk with “excitement” (39%). A majority of investors (64%) in this profile characterize themselves as “real risk seekers,” with 76% indicating that they are willing to make high risk and high return investments. This group also admits they are more willing than their peers to take risks in other areas of life such as borrowing too much when buying a house, or making a career change with less financial security.

While 53% of respondents in this group consider themselves knowledgeable about investing, they are primarily focused on growing their investments versus employing mitigation strategies to protect assets. The majority of Risk Embracers tend to be Millennials (56%) and male (67%).

“Investing for the long-term, while also trying to navigate market swings, is one of the biggest challenges facing investors,” says Marcy Keckler, vice president of Financial Advice Strategy at Ameriprise. “Whether you are an experienced investor or beginning to build your retirement nest egg, having a comprehensive financial plan and understanding how risk factors into your plan can help build financial confidence.”

The Financial Risks & Investor Attitudes study surveyed 3,000 Americans between the ages of 25 and 70. Respondents ranged from Millennials with at least $25,000 in investable assets to Gen Xers and Baby Boomers with at least $100,000 in investable assets. More information is at www.ameriprise.com/financialriskstudy.