Owners of Passive Strategies Often Don't Understand Products'
Thirty percent of millennials consider themselves short-term investors, and one quarter of them say their primary goal is protecting principal. The survey also reveals that millennials hold more cash on average, at 25.8%, and fewer US equities, at 30.5%, than older generations. [
"The data confirm that we have a lost generation of investors. The impact of 2008's Great Recession has had a deep-seated secular impact on millennial investors. Their grandparents are more aggressive investors," said
Millennial sentiment may actually be slipping, as 46% of them agree with the statement that they would never be comfortable investing in the market, up from 40% in MFS'
Investing Sentiment and Financial Advisors
Financial advisors surveyed by MFS remain upbeat on the economy over the next five years, with 79% saying they are optimistic. However, only 44% of investors are optimistic, while 38% are pessimistic about the economy over the next five years.
Furthermore, only 44% of investors are confident about their current asset allocation. As a result, the survey continues to reveal that investors are holding relatively high levels of cash, currently 24%, which is down slightly from 26% in
"While equity exposure may be ticking up slightly for all age cohorts, investors continue to hold larger-than-expected cash allocations, which will make it very hard for them to meet their long-term financial goals," added Finnegan. "A significant number of investors are pessimistic, and the memories of 2008 are still fresh in their minds. Regardless of their time horizon, they continue to trade growth for safety."
Misunderstanding Passive Investing
The survey also revealed that many investors own a mix of passive and active investments and do not show a strong preference for one type over the other. In fact, nearly two-thirds of investors who owned passive investments also owned active investments, and 20% of all investors say they planned to increase their allocation to actively managed mutual funds in the next 12 months.
"In the minds of most investors, it's not active OR passive, but active AND passive," said Finnegan. "However, the survey clearly revealed a lack of understanding about the key characteristics of these two investment approaches."
Of note, among investors who have ever owned passive investments, 48% said a major factor for owning them was "minimal risk." Furthermore, less than half (48%) of owners of passive investment products know the correct definition for these strategies. Moreover, when given three potential definitions, only 38% of all investors choose the correct one, while 41% say they have "no idea." [
Investors do not appear to have a strong understanding of actively managed investments as well, despite the fact that they have been widely used for several decades. Twenty-seven percent of survey participants described active investments as "complex," while only 29% said that they were either extremely or very knowledgeable about active investments.
"Whether it's passive or active, we are concerned investors don't understand what they own and the investment risks associated with these strategies," noted Finnegan. "Given the impact of the last recession on investors, the risk of not knowing why they own something could dramatically impact investors' financial futures and their ability to meet their long-term goals. Financial advisors are uniquely positioned to bridge this knowledge gap."
About the current survey
MFS, through Research Collaborative, an independent research firm, sponsored an online survey from
Established in 1924, MFS is an active, global asset manager with investment offices in