Investors Adopting More Conservative Mindset in Year of Extreme Stock Market Volatility

Buffeted by tumultuous market swings, households are planning to invest more conservatively, according to fourth financial quarter wealth level studies conducted by Millionaire Corner. Eight in 10 households said they are opting for safer investments.

"Volatility" has been the watchword throughout 2011. Between the partisan battles over the debt ceiling, the first-ever downgrade of the U.S. credit rating and the eurozone crisis, the year has seen market swings that recall the calamitous 2008.

This is not helping investor confidence. A majority of investors (56.9 percent) surveyed in December by Millionaire Corner said they do not expect the economy to improve over the next six months. The most pessimistic households are those with a net worth between $500,000 and $1 million, 60.1 percent of which do not expect better things for the economy. They are followed by Millionaire households (58.3 percent).

The Chicago Board Options Exchange's Volatility Index (also known as the "fear gauge") has dipped in December, but analysts caution that this may be illusory. According to the blog Vix and More, the VIX has hit its calendar-year low in the week before Christmas in five of the past eight years. This is due to the number of holidays and slow trading days,

How will this more conservative mindset translate in investment choices? Nearly 42 investors we surveyed said they will opt for pooled investments such as mutual funds and ETFs. Nearly 40 percent said they would invest in cash or cash equivalents such as CDs. Only 15.1 percent said they would invest in precious metals.

Investors under 40 are significantly more likely to invest in cash than older investors. Forty-nine percent said they would follow this strategy compared to those between the ages of 41-40 (34.3 percent). This age group is the most likely to invest in pooled investments (43.3 percent) and precious metals (19 percent).

When asked which pooled investments they would invest in, 65.1 percent said mutual funds or index funds. Just over 43 percent said they would invest in actively-managed mutual funds. At 30.9 percent, bond funds were the third most favored pooled investment preference. Mutual funds were favored most by those under 40 (76.5 percent)., while bond funds were preferred most by investors over 60 (37.4 percent).