Investors’ Financial Knowledge Base Has Room for Dramatic Improvement, According to AMG Funds Study
September 06 2017 - 9:00AM
Majority of investors struggle to understand
basics of risk and diversification, reinforcing the need for
financial advisors’ expertise
Most investors consider themselves at least somewhat
knowledgeable when it comes to personal investing, and believe they
have a good sense of the strategies that will help them achieve
their financial goals, according to a recent survey conducted by
AMG Funds LLC, the U.S. retail distribution arm of global asset
management company Affiliated Managers Group, Inc. (NYSE:AMG).
However, survey results demonstrate that many investors have a
limited understanding of basic investing principles, including the
assessment of risk and importance of diversification. The survey
polled 1,000 individual investors with over $250,000 in household
investable assets.
While seventy-three percent of investors surveyed have a
financial advisor today, there remains substantial room for
improvement in investors’ financial ‘IQ.’ Even though more than
half of surveyed investors have primary investment goals which
require diversification and risk management to succeed, only nine
percent of survey respondents could correctly identify market risk
measures. Fewer than 10 percent of investors identified beta and/or
standard deviation as risk measurement tools, and only 42 percent
were able to identify reasons for the importance of diversification
in investing. Moreover, only one in five investors is concerned
about diversification in their own portfolios, while only 19
percent of respondents are aware that diversification requires
investing across asset classes as opposed to choosing only a broad
selection of equities. Furthermore, 41 percent of investors are
rebalancing their portfolio quarterly or more often, but their lack
of understanding puts their reasoning into question.
Millennials (ages 18–35) are particularly confident about their
investment abilities – 81 percent consider themselves “extremely or
very knowledgeable” compared to just 19 percent of Boomers (ages
52–70) who describe themselves as such. However, according to
survey results, Millennials’ understanding of diversification
concepts is weak compared to older investors. Just one in 10
Millennials understands the benefits of diversification, compared
to 50 percent of Boomers – but across all age groups, there remains
room for improvement.
Although investors’ understanding of risk management and
diversification could be much stronger, they have high expectations
for portfolio returns – on average, 8.8 percent annually over the
long term. Furthermore, 37 percent expect their portfolio to return
10 percent or more per annum over the long term. With an
expected average annual return of 13.7 percent, Millennials are
more ambitious, even as they also have an average cash allocation
of 25 percent – and they may not be aware that in order to achieve
targeted returns with the drag of such a large cash allocation,
risk-seeking assets within the portfolio must return more than 18
percent per year.
“Our study highlights the ongoing need for professional
financial advice, even though investors may not fully recognize its
worth,” said Jeffrey T. Cerutti, CEO of AMG Funds. “Given the
proliferation of investment options along with evolving technology,
financial advisors must demonstrate the value to investors of
working with a qualified professional. To that end, they should
make a concerted effort to educate current and prospective clients
on managing their portfolio toward financial goals, including how
to best manage risk and utilize diversification, as well as optimal
asset class allocations.”
For more information on the results of AMG Funds research,
please visit www.amgfunds.com/wealth-trends.
Methodology
The AMG Funds survey was conducted online among affluent
investors with over $250,000 in household investable assets who
participate in making household savings and investment decisions.
Data was collected from November 28, 2016, through December 7,
2016, among 1,000 respondents, age 18 or older, through an online
consumer panel. The data was weighted by distribution of age and
investable assets from the 2013 Survey of Consumer Finance.
Percentages may not total to 100 due to rounding.
About AMG and AMG Funds
AMG is a global asset management company with equity investments
in leading boutique investment management firms. Through AMG’s
innovative partnership approach, each Affiliate’s management team
retains ownership of significant equity in their firm while
maintaining operational and investment autonomy. AMG Funds LLC is
the U.S. retail distribution arm of AMG, and provides access to
premier boutique asset managers through a unique partnership
wherein the investment managers remain truly independent. AMG Funds
is not beholden to a single investment approach or a single manager
in delivering quality investment solutions. This innovative
approach leverages the independent manager’s specific expertise to
deliver products that cover the complete asset class spectrum. AMG
Funds offers access to specialized investment expertise by
delivering the talents of independent management teams under a
consolidated platform.
Business Inquiries:William Finnegan(203)
299-3541william.finnegan@amg.com
Media Inquiries:Josh Clarkson(212) 279-3115 ext.
259pro-amg@prosek.com
Affiliated Managers (NYSE:AMG)
Historical Stock Chart
From Aug 2024 to Sep 2024
Affiliated Managers (NYSE:AMG)
Historical Stock Chart
From Sep 2023 to Sep 2024