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Investing not just for white-collar wealthy

Glenn Freeman  |  20 Nov 2018Text size  Decrease  Increase  |  
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The notion of investing being the sole preserve of a white-collar elite is misplaced, according to a new Morningstar study, which shows more than half of all American households are exposed to the market. 

Yet despite this statistic, this new class of investor is frequently looking in the wrong place when it comes to financial advice, says Morningstar's senior research analyst Jake Spiegel.

Up to 53 per cent of all American households are invested in the markets, a figure that jumps to 61 per cent for households that are in work, according the report entitled It’s Time to Redefine ‘Investor’.

Investors reported seeking advice from family and friends more frequently than from advisers and planners – and more investors turned to the internet.

"That’s dangerous: parents and friends may be propagating and encouraging the same mistakes that they’re making, rather than providing objective advice and teaching best practices," Spiegel says.

The report draws on the US Federal Reserve's Survey of Consumer Finances – a national survey of American households conducted every three years, covering finances, demographics, and aspirations.

It notes the role that proliferating “workplace-sponsored retirement plans and individual retirement accounts” in the US has led to more workers becoming investors.

"Most investors are workers who have exposure to markets through their tax-advantaged retirement accounts," says report co-author Spiegel.

The study finds 66 per cent of investing households invest solely through these accounts, according to Morningstar's analysis of the SCF.

 

who are investors

More than half of this cohort invest exclusively through workplace-sponsored retirement plans and another 24 per cent invest exclusively through their individual retirement accounts. The remaining 22 per cent have both workplace-sponsored plans and IRAs.

The SCF finds more than 45 per cent of investors work in industries that fall outside those we normally identify as "white collar".

This profile differs considerably from the stereotypical white-collar professional, who follows the market daily through the financial press.

Looking for advice in the wrong place

And while more people have exposure to the market, Spiegel warns they are less careful when it comes to advice on investing.

Two nagging perceptions stand out: advice is either too expensive, or for wealthier people.
Less than 40 per cent of investors rely on advisers or planners when it comes to saving and investment decisions, Spiegel says.

 where get advice

 

Most Americans with either employer-sponsored or personal retirement accounts "don’t look to financial advisers and planners for advice,” Spiegel says, “or they don’t view the advice advisers and planners dispense to be worth the price tag”.

"Investors turn to several different sources of information to help with their saving and investment decisions, some of which may not be appropriate for them," Spiegel says.

"Perhaps this is a side-effect of the white-collar investor preconception; it could be that many investors write off advisers as a source of information and guidance because they think advisers aren’t 'for them,' so they turn to friends or family or opt for the do-it-yourself approach."

This sentiment is likely a feature among Australian investors given Australia's banking royal commission's findings of widespread mis-advice that was, at best, ineffective and at worst, harmful.

 

More from Morningstar

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Glenn Freeman is senior editor at Morningstar Australia.

© 2018 Morningstar, Inc. All rights reserved. Neither Morningstar, its affiliates, nor the content providers guarantee the data or content contained herein to be accurate, complete or timely nor will they have any liability for its use or distribution. This information is to be used for personal, non-commercial purposes only. No reproduction is permitted without the prior written consent of Morningstar. Any general advice or 'class service' have been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), or its Authorised Representatives, and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. Please refer to our Financial Services Guide (FSG) for more information at www.morningstar.com.au/s/fsg.pdf. Our publications, ratings and products should be viewed as an additional investment resource, not as your sole source of information. Past performance does not necessarily indicate a financial product's future performance. To obtain advice tailored to your situation, contact a licensed financial adviser. Some material is copyright and published under licence from ASX Operations Pty Ltd ACN 004 523 782 ("ASXO"). The article is current as at date of publication.

 

is senior editor for Morningstar Australia

© 2020 Morningstar, Inc. All rights reserved. Neither Morningstar, its affiliates, nor the content providers guarantee the data or content contained herein to be accurate, complete or timely nor will they have any liability for its use or distribution. This information is to be used for personal, non-commercial purposes only. No reproduction is permitted without the prior written consent of Morningstar. Any general advice or 'class service' have been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), or its Authorised Representatives, and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. Please refer to our Financial Services Guide (FSG) for more information at www.morningstar.com.au/s/fsg.pdf. Our publications, ratings and products should be viewed as an additional investment resource, not as your sole source of information. Past performance does not necessarily indicate a financial product's future performance. To obtain advice tailored to your situation, contact a licensed financial adviser. Some material is copyright and published under licence from ASX Operations Pty Ltd ACN 004 523 782. The article is current as at date of publication.

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