Reduction in Fed's bond-buying to have negative impact

July 22, 2013 at 10:27 AM
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More than half of investors believe that a dialing-down of the Federal Reserve's bond-buying program will negatively impact the U.S. economy near-term, but have a stabilizing influence long-term, new research reveals.

UBS Wealth Management Americas discloses this finding in the fourth edition of "UBS Investor Watch," a survey of 4,450 U.S. investors ages 25 and older who have $250,000-plus in investable assets. The study analyzes investors' financial sentiments, their economic outlook and concerns, personal goals and concerns and timely topics, such as the impact of the sequester and the fiscal cliff agreement.

When questioned about the impact to the economy once the Federal Reserve reduces its bond-buying program, investors respond as follows:

51 percent: Negative short-term impact, stabilizing in the long-term;

14 percent: No significant impact;

9 percent: Significant negative long-term impact; and

26 percent: Don't know.

"The recent market volatility brought on by the impending Fed action to end the stimulus did not impact long-term investors' psyche or investing behavior, as they believe any actions will ultimately stabilize the economy in the long-run," the report states.

Most of the investors polled by UBS expect to be able to achieve their financial objectives. Among investors with $1 million to $5 million in investable assets, 62 percent expressed confidence. The figure rises to 64 percent among investors with $5 million-plus in investable assets.

Despite significant market gains over the past year, investors maintain an average of about 20 percent of the assets in cash, as they have for the past three years. Additionally, the report notes, most investors say they have "the right amount of cash" (64 percent) and expect to maintain current cash levels for the next year (56 percent).

"Holding a significant amount of cash seems to give investors confidence to invest," the report states. "Therefore, it appears that having significant cash reserves enables investors to feel comfortable investing large portions of their remaining asset in equities. 

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