Given the increasing efficiency of equity markets, most do-it-yourself investors can find low-cost access to U.S. stocks – but fixed income is another matter.
In fact, DIY investors are at a significant disadvantage to their professionally advised peers when it comes to investing in bonds and other fixed-income instruments, according to recent research from BNY Mellon Investment Management.
Approximately one-in-three investors (35%) without an advisor report understanding fixed-income investments, compared to nearly two-thirds (64%) of those who have worked with an advisor, according to a survey of more than 2,000 Americans.
Similarly, 64% of respondents working with an advisor reported having some allocation to fixed-income investments, compared with just 25% of those who have not worked with an advisor. Yet, paradoxically, working with an advisor seems to increase an investor’s appetite for risk – just 27% of those not working with an advisor expressed some or a strong appetite for risk, compared with 42% of those who have worked with an advisor.
Yet respondents with and without an advisor typically share some common misconceptions, and in some cases, having an advisor seems to exacerbate their ignorance on fixed-income investing:
- One-third of those who have worked with an advisor and 28% of those who have not believe that all bonds provide the same level of risk.
- Most of the investors, 70% with an advisor, 66% of those without, believe investing in equities requires more skill and knowledge than fixed income investing
- Half of those who have worked with an advisor, and 39% of those who have not believe fixed-income returns cannot approach equity returns.
- Half of those who have worked with an advisor and 41% who have not believe that investors must hold all bonds to maturity.
- Two-fifths of those who have worked with an advisor, 41%, and 35% of those who have not believe that taxes should never be a consideration in deciding which bonds to add to their portfolios.
For the study, BNY Mellon Investment Management sponsored a survey of 2,007 U.S. adults, fielded from July 8 to 14, 2019.