Survey: Many Americans are effectively investing blindfolded
Reaching investment goals is a tough job, but it is much more difficult when you don't watch where you are going. A new survey from MoneyRates.com finds that, for all they know about their investment goals and holdings, a significant portion of Americans might as well be investing blindfolded.
On behalf of MoneyRates.com, Op4G surveyed more than 1,900 American adults in September 2014 about their investment priorities and asset allocation choices. The results show that a significant number of respondents have neglected to define clear investment goals, and that many of those who have set goals are pursuing investments that are ill-suited to achieving those aims.
Who is driving this thing?
Investors should begin by setting clear goals. From there, they need to pay ongoing attention to their investments to stay on track toward those goals. However, the survey results indicate that too many people don't know where they are going at the start, and don't pay much attention once the journey is underway.
Here are 10 such examples from the survey:
1. More than one in five don't know what their primary investment goal is. Investing is a process of deciding between alternatives, and in order to do that, you have to define what you want your investments to accomplish. Unfortunately, when given a choice between some basic investment objectives -- growth, liquidity, inflation protection and preservation of principal -- 21 percent of those surveyed could not identify which is their highest priority. Without knowing that, there is no basis for making sensible investment decisions.
2. Some don't even know what they own. Besides not knowing what they are trying to accomplish, some investors don't even know what they own. This is not a question of forgetting a single stock holding or some mutual fund they bought years ago -- 12 percent of those surveyed could not identify the asset class in which most of their money was invested.
3. Nearly a quarter of all growth investors are primarily in cash. Of the investors who identified their priorities, 35 percent said their top priority was investment growth. Unfortunately, 23 percent of these have cash equivalents as their primary holding. Cash is not associated with growth under any circumstances, and it is certainly not today with yields generally at less than 1 percent.
4. More than a quarter of people seeking preservation of principal are primarily in stocks. While some growth investors are too conservatively invested, the opposite is true of some investors seeking preservation of principal. Twenty-eight percent of these investors cited stocks as their primary asset class.
5. People may not understand how bonds behave in a low-interest-rate environment. Preservation-minded investors are more likely to own large bond positions, which might sound appropriate until you consider the dynamics of today's interest rate environment. Not only do low yields provide little cushion against price volatility, but the possibility of rising rates could send bond prices sharply downward.
6. People's investment objectives may be age appropriate … People 55 and older are more than twice as likely to cite preservation as their top priority than people under 55, which seems appropriate.
7. ... but their investment holdings don't always match up. Unfortunately, though differences in objectives may seem age appropriate, some investors do a poor job of matching their investments to their goals. Despite having more conservative goals as a group, investors 55 and older are more likely to favor stocks than their younger counterparts.
8. Women are less sure of their goals than men. Failure to establish investment priorities appears to be a bigger problem for women than for men. Twenty-seven percent of the women surveyed said they are unsure of their top investment priority, compared with 14 percent of men.
9. Women are also less likely to know what they own. By margin of 17 percent to 7 percent, women are also more likely than men to not know how the bulk of their assets are invested.
10. Men are more aggressive about investments. Men are much more likely than women to choose growth as their primary objective, even though there is no financial reason for men to be more aggressively invested than women.
An optimistic view of these survey results would note that many of those polled are doing things the right way: They know what their top investment priority is and appear to have holdings that match that priority. However, given what's at stake, the numerous respondents who appear to have no idea where their investment program is going make the results quite disturbing.
Putting your goals in sight
You probably would not get behind the wheel of a car without knowing where you are going, and you certainly would not drive that car blindfolded. However, this survey shows that too many people are investing with no idea of where they are going or even where they are now.
Setting clear investment priorities and regularly monitoring your progress in terms of those priorities are essential ingredients of responsible investing. Even with a conscientious effort, investment goals can be hard to reach. Reaching them without paying attention is nearly impossible.
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