Survey: Investors Fear Inflation

February 23, 2004

TIPS can provide inflation hedge.

Americans are spooked that their investments may not outpace inflation, but may not know what to do about it, according to an investor survey on inflation.

The Hartford survey, conducted by an independent research firm in December 2003, indicates that 72 percent of investors are concerned their investments will not keep pace with inflation, an increase of 14 percent from last year's survey. The concern increases with age. Of those older than 65, 84 percent were concerned that their investments would not keep up with inflation. Overwhelmingly, people believe inflation will be higher over the next 12 months, and in three and five years. Of those respondents age 65 and older, 86 percent believed that inflation would be higher during the next five years.

'The survey demonstrates that despite the fact that investors are very concerned about inflation, most investors are not moving to put inflation protection in place in their portfolios,' said Bill Davison, managing director of Hartford Investment Management Company and co-portfolio manager of The Hartford Inflation Plus Fund. 'Though most investors are concerned inflation will rise, only 7 percent currently own Treasury Inflation Protected Securities (TIPS) or TIPS funds which are expected to help investors keep pace with inflation,' Davison said.

TIPS are bonds issued by the U.S. Treasury and whose principal value is periodically adjusted according to the rate of inflation.

The survey also showed that over the past 18 months, investors have reallocated most of their investments to money market funds and dividend paying stock funds followed by CDs and corporate bonds. Treasury Inflation Protected Securities (TIPS) or TIPS funds received only 6 percent. Of those 65 and older, 10 percent had reallocated money to TIPS products. The survey was sponsored by The Hartford Financial Services Group.

While the concerns about inflation have increased significantly year- after-year, overall concerns about market volatility depleting invested principal decreased from 70 percent in 2002 to 63 percent in 2003. The survey also showed that concerns about investment returns not being adequate to meet investment goals dropped from 74 percent to 65 percent.

 

 

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