Aggressive investments needed for retirement

Retail and institutional investors' behavior appears to be counter to their investment goals, as they talk about the need to be aggressive in investments, but prefer to keep a high 30-odd percent of their assets in cash, according to a global investor study conducted by the State Street Center for Applied Research.

According to the study, 40 percent of retail investors interviewed worldwide believe that in order to be prepared for retirement, they needed to be more aggressive in investments, while keeping 31 percent of their assets in cash, that will be the largest part of their assets in the next 10 years.

The study was based on 12 months of research and input from 3,300 investment management industry participants across 68 countries, including 2,725 investors, 403 investment providers and government officials.

State Street Corporation is one of the world's leading providers of financial services to institutional investors, with $23.4 trillion in assets under custody and administration and $2.1 trillion in assets under management at September 30, 2012. The Center for Applied Research is an independent think tank residing at State Street Corporation.

Suzanne Duncan, global head of research at the Center for Applied Research, said that the gap between Asia Pacific investors' behavior and their investment targets is even wider than the global level.

"A total of 40 percent of retail investors from Asia Pacific said they should be more aggressive with investments, with 32 percent of their assets being held in cash," said Duncan.

She believes that one of the reasons that retail investors across the world are holding such a high proportion of cash is that they have "trust issues".

The study shows that only one-third of global investors (or 40 percent of investors from Asia Pacific) believe their primary investment provider is acting in their (the investors') best interest versus the firms' best interest.

Meanwhile, nearly two-thirds of investors (or 60 percent of Asia Pacific investors) are not particularly loyal to their primary investment provider.

Duncan also pointed out another reason that the retail investors like to hold on to cash is they are overly confidence about their knowledge and ability in investments."Around two thirds of retail investors we interviewed believe they are 'advanced' in terms of the sophistication in investments," she said.

The study also finds out that institutional investors are faced with challenges in navigating the complexity of certain asset classes.

Low-yield markets have increased institutional investors' appetite for alternative strategies, yet, the majority admits their greatest challenge is not having a deep enough understanding of these assets and their No.1 weakness is having a deep understanding of potential risks.

These institutional investors are actual asset owners, including sovereign funds, central banks as well as HKMA, said Duncan, adding that even they can't promise that they have fully understood the markets' risks.