In the past few months, Spectrem’s Investor Confidence Index has seen a slight increase in investors’ interest level in bonds. (Interest levels in Bond Mutual Funds increased from 8.8 to 14.4 from August 2018 to September 2018 in Spectrem Affluent Investor Index.) This increase, while still small, is not surprising due to the recent increases in interest rates along with the proposed future rate increases. But this is critical for investment advisors and provides them with new opportunities to assist their clients. Why? Because investors feel they are knowledgeable about investing in stocks but they feel much less confident about making decisions regarding bonds.
In research just completed by Spectrem Group, investors indicated that in the past two years they made the decision to buy equities based on a recommendation from their advisor only 24 percent of the time. Overall, investors indicated that on a scale of 0-to-100 they follow their advisor’s investment recommendations at a level of 70.84. So investors rely on their advisors just less than three-quarters of the time overall. But when you ask investors who classify themselves as Very Knowledgeable/Fairly Knowledgeable (represents about two-thirds of investors) about the source they rely upon most when making an investment decision 49 percent of those who are Very Knowledgeable and 39 percent of those who are Fairly Knowledgeable rely upon information from National Television programs such as CNBC, Fox Business and Bloomberg, compared to only 17 percent of all investors who turn to information provided from their advisor.
So investor’s make decisions regarding equities sometimes due to an advisor’s recommendation and sometimes not. But what about bonds? Do investors purchase bonds in the same way they purchase equities? Definitely not. For investors that have purchased bonds in the past two years, 67 percent of investors did so because the advisor found the bond and made the recommendation. Clearly making the appropriate decisions regarding bond investments feels more complex to investors than equities. Why is this? Maybe because pundits discussing bond investments are never quite as popular as those who are discussing or yelling about equities on various cable shows?
Forty-seven percent of wealthy investors currently own bond funds while only 32 percent own individual corporate bonds. Thirty percent own municipal bonds and 26 percent own Fixed Income ETFs. There is a clear correlation between wealth and any type of bond ownership. As investors continue to age and if the market continues its volatility, the interest in bonds may continue to attract investors of various wealth levels. Educating clients about bonds may lead to larger portfolio discussions and perhaps greater reliance upon their advisor’s recommendations.
Sometimes it’s important to get past the daily buzz about “hot stocks” and stock market records and help investors understand what they may and may not know about their own portfolios. So the next time an investor asks about the stock of the moment, make sure they also consider bonds, if appropriate.
© 2018 Spectrem Group