Majority of investors struggle to understand basics of risk and diversification, reinforcing the need for
financial advisors’ expertise
GREENWICH, Conn., Sept. 06, 2017 (GLOBE NEWSWIRE) -- 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) 299-3541
william.finnegan@amg.com
Media Inquiries:
Josh Clarkson
(212) 279-3115 ext. 259
pro-amg@prosek.com
