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Dreyfus released the second investor survey data set in July 2017 to explore how different generations of investors approach asset allocation strategies such as domestic vs. international equity investment, the 60/40 rule, and advisors’ influence on their decision-making. They surveyed the following groups: 21-34 (younger investors/Millennials), those aged 35-54 (Generation X), and those aged 55+ (Baby Boomers and Traditionalists). This included individual investors who work with a Financial Advisor (FA).
The data revealed substantial disparities in how different generations view international versus domestic equity investment. It also illustrated how investors widely misunderstood the 60/40 allocation rule (60% equities/40% bonds), and how many investors and advisors no longer supported it.
The vast majority (90%) of investors aged 21-34 and 78% of those aged 35-54 expressed an opinion about the percentage of a portfolio that should be allocated to international investments. Only 59% of those aged 55+ expressed an opinion about international investments.
Of those who expressed an opinion, those aged 55+ favored U.S. investments over international/global, preferring to allocate only 16% of their portfolios to international investments, thus keeping the vast majority of their investments domestic (84%).
Millennial respondents preferred to allocate an average of 41% of their portfolios to international investments, and those aged 35-54 allocated 36% internationally.
77% of all respondents believe that as an investor it’s important to make investments and support companies that contribute to the growth of the U.S. economy, but those aged 21-34 were much more likely to emphatically throw their dollars behind that belief. 82% of investors aged 21-34 indicated it’s important to make investments and support companies that contribute to the growth of the U.S. economy.
All groups (71% of all) agreed that if they are going to invest globally, they need their financial advisor or other expert to counsel them on the unique risks and rewards of a global investment strategy.
Younger investors (79% of those aged 21-34) and 74% of those aged 35-54 were slightly more likely than their older counterparts to rely on their advisors in this regard, with only 61% of those aged 55+ expressing the need for guidance on a global strategy.
The research reveals that nearly half (49%) of retail investor respondents were unsure of its meaning.
When pressed on the matter, only 18% of all retail investor respondents were correct in thinking that it meant 60% of their investment portfolio in stocks, 40% in bonds.
42% of individual investors believe that “60/40” is a strategy for allocating long-term and short- term investments, with one-quarter (23%) saying it means “60% of my assets in short-term investments, 40% in long-term investments.”
When given the definition of the 60/40 strategy, only half (54%) of all investors agree that “a 60% stocks/40% bonds portfolio is the ideal asset allocation.”
63% of investors responded that for quicker wealth accumulation and asset growth, you need to be more flexible, innovative and sensitive to changing market conditions than what the 60/40 model provides.
62% of investors believe you should incorporate diverse assets, approaches and strategies such as alternative investments, multi-asset and real return strategies, real estate investment strategies, smart beta and tangible assets.
Younger investors have the strongest conviction towards moving away from the 60/40 approach, as 70% said it is old-fashioned and doesn’t make sense in today’s investing environment of uneven economic growth, low rates globally and the expectation of rising U.S. rates and low volatility. 52% of investors aged 35-54 agree, while just 26% of 55+ aged investors feel that way.
BNY Mellon Investment Management is one of the world’s leading investment management organizations and one of the top U.S. wealth managers. It encompasses BNY Mellon’s affiliated investment management firms, wealth management services and global distribution companies. More information can be found at www.bnymellon.com.
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