Gallery:Step 5|Step 5: Manager Pickers

Some Discouraging Results from Gallup

Gallery:Step 5|Step 5: Manager Pickers

A few months ago, Gallup, Inc. conducted a poll that asked 1,026 Americans to choose the best option for their long-term investments. Here is how they answered:

The fact that less than a quarter answered the question correctly with stocks/mutual funds is distressing to say the least, and it is clearly indicative of the educational problem that pervades the investment landscape. Not surprisingly, people with higher incomes were more likely to get it right:

Yet even among the higher income group, 38% thought that real estate was a superior long-term investment over stocks. Among the lower income group, the most popular choice was gold at 31%, and even savings accounts/CDs ranked higher at 17% than stocks/mutual funds.

When the results are broken down by age group, one highly interesting (and distressing) result emerges: Younger people are more likely to favor savings accounts/CDs, which is contrary to what we would expect from our intuition.

With the traditional three-legged stool of retirement planning now reduced to a pogo stick, young people who plan to rely on savings accounts and CDs for their long-term investments are likely to encounter bitter disappointment. We are well aware that many Americans now have a cynical view of the financial markets combined with a low level of trust of financial professionals, and not without cause. However, for them to have a reasonable chance of accumulating sufficient wealth for retirement, some degree of stock market exposure is necessary. Perhaps presenting index funds as an anti-Wall Street alternative will encourage more people to use them for their long-term investments.

We at Index Fund Advisors will continue to do our best to educate all investors to help them make sensible decisions for their long-term savings. This Gallup poll tells us that we have a lot of work to do. Fortunately, we have the necessary tools such as the chart below which shows how different investment alternatives (including gold) rank with respect to risk and return.