BLOG: Brits are more comfortable than ever with market volatility
It has been a volatile period for stock markets, but UK investors are learning to accept risk and volatility in their portfolios, says fund manager Colin Morton.
2016 has already been a tricky year by anyone’s reckoning. With economic slowdown in China and increased uncertainty around both the EU referendum and US election, there was inevitability around the challenges that the global markets have faced. This cocktail of macro events has affected many investors here in the UK who have witnessed the impact of volatility on their investments and is especially pertinent to those planning for retirement.
In our annual Retirement Income Strategies and Expectations (RISE) we surveyed over 2,000 people on their retirement savings and income plans to better understand changing attitudes towards the role of investment in retirement planning. Stock market investments form a fundamental part of retirement planning for many and it’s interesting that this year 30%, up from 25% last year, have stayed or expect to stay invested in the market post-retirement, unsurprising given the alternatives to annuities now available, such as income drawdown.
An awareness of the benefits that market investments can play, particularly in providing an income stream in retirement, is also on the rise, which is reassuring for not only the investment industry but also the UK’s wider economic outlook.
However, one theme that really dominated our findings was that, despite the tumultuous macro situation, consumers are increasingly learning to accept risk and volatility in their portfolios. While 41% still feel the market is ‘too risky’ during retirement, this was down from 44% in 2015, showing that some are becoming more accustomed to risk in light of the recent periods of volatility.
Our research also showed that when asked about their reaction to a 5% decline in their retirement portfolio, just 39% said they would be concerned, down from 44% last year.
The UK public seem more accustomed to potential short term volatility in their portfolios. This could point to a growing appreciation of the benefits provided by a long term investment outlook.
The lower levels of concern around short-term fluctuations in portfolio values may also reflect a growing sense of realism among investors and the fact that they are starting to swallow the pill of lower returns in this low interest environment.
Despite a tricky end to 2015 and a subdued start to 2016, there are clearly opportunities amid the macro challenges. In this environment, investors saving for their retirement should look at ways of gaining exposure to companies which are able to provide consistent above-average dividend growth as a way of generating an attractive and sustainable source of income.
Colin Morton is manager of the Franklin UK Rising Dividends fund