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MacroMonitor Market Trends October 2011

MacroMonitor Market Trends is a newsletter from Consumer Financial Decisions that highlights topical news and trends of interest to you and your colleagues. If you would like more information about the topic in the newsletter or would like to discuss other ways that we can assist you in your research and marketing efforts, please contact us.

Uh-Oh! Where Have All the Investors Gone?

For the majority of investors, experiences in the past four years have undermined support for investing, promoted liquidity, and encouraged households to seek safety over return. The investment industry is asking, "Where have investors gone and when will they return?" Although the industry typically evaluates customers' attractiveness on the basis of households' investable assets, as investors reassess their level of sophistication, even some high-asset households are skittish about a return to investing. The following figure illustrates that fewer investors than previously are feeling confident. This lack of confidence is not good news for the industry.

Figure 1: I Consider Myself a Sophisticated Investor

The proportions of household heads that respond they are sophisticated investors—the best investment-industry prospects—peaked at roughly 6 million households in 1998 and 2006 (see the figure below). In 2006, an additional 27 million household heads felt somewhat confident about their level of investor sophistication. In total, about 33 million household heads (net) agreed they felt confident in their investment ability in 2006. Despite the increased number of households from 2006 to 2010, the number of households in 2010 that mostly or somewhat agree has declined to 24 million.

These numbers are especially foreboding for the investment industry. Following the March through November 2001 recession, the most sophisticated investors returned in 2002. Since the 2006 peak, the numbers of sophisticated-investor households are trending down; the proportions of both very sophisticated households (those that mostly agree) and somewhat confidant households (those that somewhat agree) have trended down in 2008 and in 2010. In fact, the proportion of the most sophisticated investors in 2010 declined to pre-1994 levels.

Figure 2: I Consider Myself a Sophisticated Investor

Given post-2010 economic and market events and ongoing financial-market uncertainty, it is hard to imagine an increased number of households that will feel more confident about their investing prowess in the near future. Investment firms are challenged to find new investors and to overcome declining trust in financial-investment professionals or institutions (see the March 2011 MacroMonitor Market Trends newsletter).

To learn more about how consumer financial needs, behaviors, and attitudes are changing, contact CFD.