March 31, 2023

Bucks Blog: Fewer Wealthy Americans Say They’re Conservative Investors

Traders at the New York Stock Exchange in August.Getty ImagesTraders at the New York Stock Exchange in August.

Fewer affluent Americans describe themselves as “conservative” investors, suggesting that their tolerance for risk may be rebounding after some tumultuous years.

Thirty percent describe themselves as leaning toward lower-risk investment and savings options (like “mutual funds, bonds, savings  and money market accounts”), down from 36 percent a year ago and 50 percent two years ago, according to findings of the Merrill Lynch Affluent Insights survey.

The telephone survey, of 1,000 adults with assets of more than $250,000 to invest, was conducted in August by Braun Research on behalf of Merrill Lynch Wealth Management. The margin of sampling error is plus or minus 3 percentage points.

The shift in attitude toward risk is most clear among affluent investors younger than 50. For instance, about a quarter of investors age 18 to 34 describe themselves as conservative, compared with 52 percent two years ago. These are investors who had become quite wary of the stock market, because of its volatility in the economic downturn. And a quarter of those age 35 to 50 also describe themselves as conservative, compared with 45 percent two years ago.

What is your risk appetite these days? Are you willing to consider individual stocks or alternative investments, or are you sticking with index funds and savings accounts?

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Stocks Up on U.S. Outlook, Crisis Checks Euro

European shares gained from the start on Tuesday, led by mining stocks after forecast-beating results from U.S. aluminum producer Alcoa improved the outlook for commodities.

“A good start to the earnings season; it shows the demand outlook is not so bad and we could get more positive surprises,” Mike Lenhoff, chief strategist and head of research at Brewin Dolphin Securities, said.

The key FTSEurofirst 300 index was up 1.3 percent at 1,021.47 points, while the STOXX Europe 600 euro zone banking index gained around 2.0 percent.

Nervous currency markets remained focused on the outlook for the euro zone economy, upcoming government debt sales and how the region’s banks will raise much needed capital to repair their balance sheets.

The euro rose slightly to trade around $1.2792, holding firmly above the 16-month lows of $1.2666 hit on Monday, due mainly to traders buying back the currency to square their positions after recent heavy selling.

The Bank of France focused attention on the ailing euro zone economy by reporting growth had stalled at zero in the fourth quarter of 2011 in the region’s second-biggest economy.

But separate data showed French industrial production rose 1.1 percent in November, bucking expectations for no growth as output from refineries rose from weak levels of a year ago during strikes.

“There’s short-covering and a bit of risk appetite with positive equity markets overnight,” said Niels Christensen, currency strategist at Nordea in Copenhagen.

“But we have the debt auctions, the ECB meeting on Thursday and it’s still a weak and vulnerable euro…, with no sign of a quick solution to the debt problems in the euro zone,” he said.

The worries about the health of the region’s banks saw commercial lenders’ overnight deposits held at the European Central Bank hit another record high of 482 billion euros.

The banks are awash with cash after taking an unprecedented 489 billion euros in the ECB’s first-ever three-year liquidity operation late last month, but they are still uncertain about what to do with the money in the longer term.

French banks were also likely to be in the spotlight after an internal memo obtained by Reuters on Monday showed Societe Generale is forecasting a sharp drop in investment bank revenue in 2012, weighed by higher funding costs and efforts to slash its balance sheet.


Earlier, data showed China’s exports and imports grew at their slowest pace in more than two years in December. The figures fuelled expectations of more policy action from Beijing to support the world’s second biggest economy, and most Asian markets gained on Tuesday.

Wall Street ended slightly higher on Monday in a light-volume session as investors stayed cautious ahead of the earnings season that kicked off with Alcoa.

Tuesday’s focus in euro zone debt markets will mainly be on Austria’s auction of 1.3 billion euros of 10-year bonds which should give an indication of how worried investors are about the country’s exposure to neighboring Hungary, which is locked in a dispute with the IMF over international aid.

Bund futures were slightly lower in midmorning trade.

Elsewhere, British retailers finished 2011 with the best sales growth in months as hefty discounting lured in shoppers, while weak business a year earlier flattered the figures, the British Retail Consortium said on Tuesday.

It added that it expected another tough year.


The euro zone crisis:

China imports and exports:

Euro zone bond yields:

BRC UK retail sales

ECB bank borrowing, deposits


(Additional reporting by Joanne Frearson and Jessica Mortimer; Editing by John Stonestreet)

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Economix: What’s a Crisis and What Isn’t

Today's Economist

Laura D’Andrea Tyson is a professor at the Haas School of Business at the University of California, Berkeley, and served as chairwoman of the Council of Economic Advisers under President Clinton.

Long term, the United States faces a fiscal challenge that must be tackled –- but it is not an immediate fiscal emergency. In the labor market, though, there is an immediate crisis, the worst since the Great Depression.

According to the latest estimates from the Congressional Budget Office, if current fiscal policies are maintained, federal debt held by the public could rise to an unprecedented 187 percent of gross domestic product in 2035 from 62 percent of gross domestic product at the end of 2010.

This is neither a desirable nor a sustainable outcome. Long before we got there, the United States would lose the confidence of investors, igniting a spike in interest rates, a collapse of the dollar, a global financial crisis and a devastating recession.

But with substantial excess capacity in the economy, there is no evidence that the federal deficit is driving up interest rates and crowding out private spending. What’s slowing the pace of recovery is not too much government borrowing but too little private spending.

Nor are there symptoms of an imminent sovereign debt crisis facing the American government over the next few years. Rather, worries about slower growth in the United States, along with a flight to safe assets and a reduction in risk appetite by global investors, have kept the federal government’s borrowing rates near historic lows.

And that’s despite threats by irresponsible members of Congress to initiate a default on the government’s debt by failing to pass an increase in the debt limit.

In the labor market, the situation is dire. Almost 14 million people –- 9.1 percent of the labor force –- were unemployed in May. About 45 percent of those had been unemployed for 27 weeks or more, according to the Bureau of Labor Statistics. Another 8.5 million part-time workers wanted but could not find full-time jobs; an additional 2.2 million dropped out of the labor force because they could not find work.

During the last five years, the percentage of the population working has fallen to 58 percent from 63 percent, reducing the number of Americans with jobs by 10 million.

The economic and human costs associated with the jobs crisis are staggering. An extended period of unemployment means lower earnings: workers who return after long-term unemployment earn 20 percent less over the next 15 to 20 years than a worker who was continuously employed.

The longer workers are unemployed the more likely they are to lose their skills and drop out of the labor force. And the longer workers are unemployed, the more likely they are to lose their homes, their health and their marriages –- and the more likely their children will grow up in poverty –- with adverse implications for their health, education, and future incomes.

The primary cause of the jobs crisis is a lack of demand, the same problem that bedeviled the economy in the 1930s. Consumers, long the primary engine of economic growth in the United States, are in the midst of an unprecedented retrenchment.

High debt levels, falling housing prices, a lack of employment opportunities and wage stagnation are forcing people to curb their spending, pay down their debt and increase their saving. In the 13 quarters since the beginning of 2008, the annual growth of real consumption, which still accounts for about 70 percent of gross domestic product in the United States, averaged just 0.5 percent. Not since the end of World War II has consumption been this weak for this long.

Speaker John A. Boehner and the Republican majority in the House say the way to address the immediate jobs crisis and the long-term fiscal challenge is to make deep cuts in federal spending. Indeed, a recent study by the Republicans on the Joint Economic Committee concluded that “quick, decisive government spending reductions” can promote growth and jobs in the short term.

But the overwhelming evidence suggests the opposite: when the economy has excess capacity, high unemployment and weak private demand, cuts in government spending reduce growth and eliminate jobs.

On this point, there is widespread agreement among experts. Ben Bernanke, chairman of the Federal Reserve, recently warned that sudden fiscal contraction might put the still fragile recovery at risk. The June report from the C.B.O. contains a similar warning. Even William Gross of Pimco, a vocal critic of the long-term fiscal position of the government, cautions that a move toward fiscal balance, if implemented too quickly, could “stultify economic growth.”

As Simon Johnson noted in his recent Economix post, fiscal contractions are expansionary only under special conditions. None of these apply to the United States today.

So what should policy makers do? They should pair fiscal measures aimed at job creation now with a credible plan to reduce the deficit gradually –- and pass both at once, as a package. Approving a deficit-reduction plan but deferring its starting date until the economy is near full employment will cut the odds that immediate contraction will tip the faltering economy back into recession.

Indeed, passage of such a package could bolster growth by easing investor concerns about future deficits, reducing long-term interest rates and strengthening consumer and business confidence.

There is strong bipartisan support among budget negotiators in Washington for an enforceable debt target as an essential component of a credible deficit-reduction plan. Breaching the target would lead to automatic changes in spending and revenues. I believe we should pair an unemployment-rate target with a debt target. The unemployment-rate target would postpone significant spending cuts or revenue increases to achieve the debt target until the economy is closer to full employment.

Most economists believe that full employment for the American economy implies a structural unemployment rate of 5 to 6 percent. The unemployment-rate target should be set within that range. Current forecasts by the C.B.O., the Office of Management and Budget, the Hamilton Project and most private-sector economists predict that this target will not be achieved until 2015 or later. That’s when serious actions to narrow the long-run fiscal gap would begin to take effect.

Can we afford to defer such actions until the economy is much closer to full employment? Yes.

As the economy recovers and temporary fiscal stimulus measures are phased out, the deficit as a share of gross domestic product is expected to decline markedly during the next few years. Extending some measures enacted at the end of 2010 –- the payroll tax cut for employees, the capital investment expensing deduction and long-term unemployment benefits –- would add little to the long-run fiscal gap and would boost the flagging recovery.

Given the magnitude of the jobs crisis, we should go further by cutting payroll taxes for employers on new hires, including all hires by new firms. David Leonhardt, a columnist at The New York Times; Michael Greenstone, an economics professor at the Massachusetts Institute of Technology; and Robert H. Frank, an economics professor at Cornell, have recently proposed this approach. Mr. Frank estimated that eliminating the employer payroll tax on new hires could result in more than five million new jobs. A cut in payroll taxes should be maintained until the unemployment rate target is reached.

As long as there is considerable slack in the economy and inflation remains low, the government should be able to finance targeted fiscal measures for job creation at reasonable interest rates, provided such measures are paired with a credible and enforceable deficit reduction plan. And provided that gamesmanship and blackmailing tactics over the debt limit do not undermine the creditworthiness of the United States on global markets.

Painful choices about how to close the long-run fiscal gap –- primarily the result of imprudent fiscal decisions before the Great Recession, escalating health-care costs and an aging population –- must be shaped now and enacted promptly over many years once the economy has recovered.

But in the next few years, the priorities of fiscal policy should be growth and jobs.

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