Investors' lack of faith in equities - triggered by the 2008 global financial crisis - is lingering, even among long-term investors who are focusing on saving for their retirement, according to a new survey.

Of the 850 US-based 21-50 year-olds questionned by T Rowe Price, 61 per cent believe that investing in stocks is "very important" or "important" to help them achieve their retirement savings goals.

However, this leaves a considerable 39 per cent who are currently refraining from stock investing - reasons for which included the pace of the US recovery, general market volatility, political uncertainty, rising healthcare costs and actual or potential unemployment, among other factors. The firm warns that over the course of a long-term retirement savings programme, an under-allocation to stocks could lead to shortfalls in account balances.

"Investors have experienced a lot of market turbulence and tough economic times over the last several years, so it's understandable from an emotional perspective that many of them – including younger investors – might be reluctant to invest in stocks," said Stuart Ritter, senior financial planner at T Rowe.

"But people with decades to go before retirement need to do their best to block out the noise of the day and focus on the long term," he said. "For investors with a long time horizon and enough tolerance for volatility, stocks have always been the best asset class for growth potential and for staying ahead of inflation."

Investors' disinclination to invest in stocks is also reflected in data from the Investment Company Institute, which shows that net new cash flow into stock mutual funds was negative in 30 of the last 48 months through September 2012.

Historical evidence aside

The firm noted that investors' aversion for stocks stands despite historical evidence suggesting that the asset class - as measured by the S&P 500 Index - has outperformed other asset classes with an annualised total return of about 9.8 per cent between 1926 and 2011. This also mirrors the findings from another recent US study which found that investors are exhibiting "irrational behaviour" and failing to act in their own best interests due to increasing awareness of economic instability and misaligned interests among investment providers, government and markets (view here).

Meanwhile, risk aversion is also prevalent in investors' attitudes toward fixed income investing, as demonstrated by 76 per cent of investors saying they are only "somewhat" or "not at all" willing to take on more risk to obtain a potentially higher yield.

"The crisis appears to have ushered in a new era of financial prudence," T Rowe said. Yet in terms of personal savings, 81 per cent of investors are setting aside about the same or more than they were before the 2008 turmoil kicked off, the findings showed. 

The survey was conducted between 8-20 August by Harris Interactive on behalf of T Rowe.