Investors want both great returns and stability. Yet they don't know how to reach their goals, really mostly on gut feelings rather than planning, a new survey shows.

Investors say they need average annual returns of 9.8 percent over inflation to meet their financial needs, including retirement, housing and healthcare, says a survey by Natixis Global Asset Management.

A return along those lines requires more risk than many can tolerate, says Natixis CEO John Hailer. About seven in 10 of investors surveyed say asset growth is increasingly more important than principal protection, yet 56 percent say they are only willing to take minimal risk.

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"Many investors," Hailer says, "have set aggressive investment targets, but don't have a realistic way of reaching them."

A shortfall of knowledge, in addition to unrealistic expectations, also plagues investors. Over three-fourths (76 percent) only own investments they understand well, but less than a fourth believe their overall investment knowledge is very strong, and only 12 percent have a strong knowledge of investments not correlated to the broader market.

More than three-quarters (79%) say they simply follow their gut instinct. To judge performance, about half mainly rely on the amount of their total assets and about half turn to their comfort level. Only 37 percent cite long-term financial success.

"Fifty percent have no clear investment goals and 54 percent have no financial plan," Hailer points out, "so it’s not surprising that when asked how they define investing success — some look at asset levels and others look at comfort level — rather than meeting long-term financial goals."

However, Natixis sees signs of a turning point in investor behavior. The survey found that most say they're willing to set a target for returns that's independent of overall market returns. Most are willing to invest using their own goals and most say they would be happy to achieve their long-term investment goals, even if they underperformed the market in a given year.

A recent survey by the financial research firm Dalbar also highlights investors' lack judgment. The firm's Quantitative Analysis of Investor Behavior found that investors in equity mutual funds earned average returns of 5.02 percent over the last 20 years, falling short of the 9.22 percent return for the S&P 500.

Jumping out of the market at low points and jumping in at high points caused the shortfall, according to Dalbar. The survey shows that traditional attempts to educate retail investors are useless, says Dalbar President Louis Harvey.

“We need a fundamental change that transforms investment thinking into meaningful decisions and choices for retail investors.”

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