Demystifying Investor Portfolios Around the World

How do portfolios of Singaporean investors compare with other markets?

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As our recently published Global Investor Portfolio Study shows, globally there is no such thing as an average investor. Common investing behaviors differ widely by market—not just in investors’ willingness to take risk but also in the choice of investment products, prevalence of home bias, or the importance of sustainability in investment selection.

For the study, we combed through statistics for 14 key wealth markets, representing all key regions as well as the two largest emerging markets, China and India.

United States: Investors Are Comfortable With Risk and Employ Strategic Asset Allocation

Our analysis showed the U.S. is the country where investors are most relaxed about taking market risk.

This easiness is largely driven by a system that relies less on governmental support and more on personal savings for major life milestones and expenditures, such as collegehealthcare, and retirement. To fulfill these goals, individuals usually must seek the help of market appreciation and risk-taking. Even after the drift toward cash and cashlike assets during the coronavirus pandemic, U.S. investors still allocate less of their portfolios to cash than most investors in other markets.

Retirement accounts comprise the majority or plurality of assets for most U.S. investors. Corporations have moved to defined-contribution programs, shifting market risk off their books and onto the balance sheets of individuals. These defined-contribution plans typically rely on individuals for making their own investment decisions and has helped to create a market rich with opportunities for asset managers and advisors able to capture those assets.

Consumer choice has flourished in this individual-centric environment. The volume of options when it comes to mutual funds and exchange-traded funds dominates those of other markets. U.S. investors still largely stick to those standbys when building their portfolios.

Directly investing in securities is also common, helped along by a tax code that encourages this. Product, technology, and marketing innovations around modelsdirect indexing, and separately managed accounts for the masses will help ensure that these investments and product vehicles remain key for U.S. investors.

Varied Retirement Systems Drive Differences in Risk Tolerance

As the U.S. example shows, the type of retirement system plays a key role in each country’s investment landscape.

In markets where the workplace retirement system is built around individual defined-contribution accounts, individuals become accustomed to taking market risk early in their careers, and this tends to make them more at ease with market volatility. Investors in these countries—such as Australia, New Zealand, and the United Kingdom—also tend to build or be defaulted into more-aggressive portfolios with higher equity weightings and lesser bond and cash exposure.

In contrast, markets with defined-benefit schemes and, in some cases, supported by universal healthcare and a comprehensive social security net, show a reduced need for self-reliance. Investors in these markets are typically more conservative and take lesser equity market risk in portfolios, as they don’t feel a strong need to withstand market volatility. This includes countries such as France, Germany, and Japan. In these markets, individuals tend to start investing later, if at all, and they also have fewer assets to invest after payments for taxes, social security, and pensions.

U.S. Investors Prefer Funds While Asian Investors Tend Toward Stocks

The wave toward defined-contribution retirement accounts has also had an effect on the popularity of investment options, propelling mutual funds to become the dominant investment vehicle. This is the case with the 401(k) in the U.S., KiwiSaver in New Zealand, and superannuation in Australia.

But as our study reveals, there are many other markets in which mutual funds play only second fiddle or are even relegated to the back row of portfolio options.

In Asia, direct equities are the preferred choice for taking risk, followed by a variety of products. For example:

  • Hong Kong investors often utilize foreign exchange,
  • Japanese portfolios tend to feature annuities,
  • Chinese portfolios often include wealth management products, and
  • Indian investors rely more on fixed-income investments and annuities before funds.

And in Europe, different types of cash and fixed-income investments as well as insurance products feature often in portfolios.

Globally, real estate plays a meaningful role in personal finance. It typically makes up the biggest part of nonfinancial asset wealth and is the primary reason investors take on meaningful debt, especially in highly indebted markets such as Australia, Canada, China, Hong Kong, and New Zealand. European investors tend to prefer building wealth through real estate rather than through financial market risk. And in India, nonfinancial investments such as real estate and gold—often in physical form—trump stocks and funds in popularity.

With Closed Capital Accounts, China and India Have Largest Home Bias

One common factor across the countries we analyzed is that investors prefer to invest close to home. Home-market bias is also driven by accessibility and the need to avoid currency risk, but countries’ level of home bias varied.

U.S. investors do favor local stocks, but the difference to the world index is smaller due to the country’s high weight in global markets. At the other extreme are countries like China and India, where capital controls nudge people to invest almost exclusively in the home market, whilst their index weight is small.

Adoption of Sustainability, Private Assets Remains Uneven Across Markets

Furthermore, sustainability is typically more important as a driver of portfolio construction for investors in Europe. Environmental, social, and governance issues have yet to become top considerations for investors’ portfolio construction in the Asia-Pacific region.

Additionally, though access to private assets (such as private equity and debt) has improved in recent years, they are still often reserved for high-net-worth individuals in most markets. Accessibility and liquidity considerations are inhibiting wider adoption of this vehicle among retail investors.

Investor-Focused Advice Plays a Key Role in Risk Tolerance

While multiple factors influence the differences in portfolio-building habits, one thing is consistent among the more risk-tolerant markets: a more portfolio-driven approach to financial advice.

This includes markets like Australia, Canada, New Zealand, the United Kingdom, and the United States, where advice starts more often from a strategic asset-allocation perspective rather than the suitability assessment of individual investment products. This broader perspective helps investors to understand whether their total risk is appropriate for the returns that their financial goals require.

Global Investor Portfolio Study: No such thing as average investor

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About Author

Matias Möttölä, CFA

Matias Möttölä, CFA  is a manager research director for Morningstar.

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