Only 8% Accurately Define Fixed Income Investments; Nearly Half Have No Fixed Income Investments
NEW YORK, Oct. 21, 2019 — A new research study released today from BNY Mellon Investment Management, one of the largest asset managers in the world with $1.9 trillion as of September 30, 20191, and the world's third-largest fixed income manager by assets2, revealed the majority of Americans surveyed have limited understanding about fixed income investing regardless of age, income, education level, and other demographics. This lack of awareness ranged from the definition of bond investing, to different fixed income solutions, to the role fixed income plays in retirement planning, and the understanding of risk versus other asset classes.
For example, only 8%3 of those surveyed were able to identify the definition of fixed income investments4, with over one-third (36%) choosing "I don't know." While survey participants expressed uncertainty about the term, however, two-thirds (67%) believe that investing in equities "requires more knowledge and skill" than fixed income investing.
"Fixed income provides some of the most versatile and vibrant investment options available and yet there exists around it a sense of confusion and misperception. Chief among these is that fixed income plays an important role solely in the immediate run up to retirement, or during the decumulation phase when investors start to draw money from their investment nest eggs," said Andy Provencher, Head of North American Distribution, BNY Mellon Investment Management.
Mr. Provencher added: "As the Baby Boomer generation enters its retirement years—and these investors shift from the accumulation to decumulation phase of their lives—a meaningful understanding of fixed income solutions will of course be vital. Beyond its role in 'de-risking' portfolios in preparation for retirement, fixed income can play a crucial part in an investor's portfolio at any age. This includes the mitigation of equity market volatility as a millennial saves for a house deposit, or by helping investors make an impact in their local communities through investing in their state's municipal bond issues. It's imperative we open investors' eyes to the true potential of fixed income and challenge their 'fixed thinking.'"
BNY Mellon Investment Management's "Fixed income. Not fixed thinking" national research study surveyed 2,007 Americans age 18 or older. The study examined respondents' knowledge, attitudes, and behaviors about fixed income assets and how they are shaped by their risk tolerance, past and present investing performance, and experience engaging with professional financial advisors.
While the study found 39% of the total of those surveyed report having some portion of their investment portfolio allocated toward fixed income assets5, they remain unclear about various fixed income solutions and how bond investing works.
For example, half (50%) of those surveyed reported believing the best way to maximize the value of fixed income in one's investment portfolio is to own individual bonds rather than purchase a mutual fund investing in bonds, nearly half (44%) believe investors must hold bonds to maturity, and 43% believe fixed income returns cannot approach equity fund returns.
The study also revealed lack of knowledge about the variety of fixed income solutions available to investors. Indeed, nearly half (44%) of those who reported having no allocation toward fixed income gave the reason "lack of understanding of different fixed income classes."
Likewise, those surveyed expressed uncertainty around the role fixed income allocations have in retirement planning.
"The credit markets are complex, often inefficient and not easily understood. Fixed income asset managers with deep investment expertise in U.S. and foreign credit markets can help demystify this asset class for investors and help them target inefficiencies that may be present," said Gautam Khanna, Senior Portfolio Manager at BNY Mellon investment firm Insight Investment and lead Portfolio Manager of BNY Mellon Core Plus Fund (Class I: DCPIX). "Fixed income exposure generally has two primary objectives within an investment portfolio: first, to achieve a high degree of reliable income derived from quality sources; and, second, access to ballast or diversification from equity volatility."
ENGINE Insights CARAVAN Surveys, on behalf of BNY Mellon Investment Management, fielded the "Fixed income. Not fixed thinking" national survey from July 8 to 14, 2019. This online omnibus study was conducted among a sample of 2,007 adults comprised of 1,003 men and 1,004 women 18 years of age and older. The sample captured a broad range of respondents by age, gender, geographic location, education level, ethnicity, and household wealth. The survey sample of 2,007 has ±2.19% Margin of Error (MoE) at 95% confidence at the "All Respondent" level and ±3.09% to 4.4% MoE at 95% confidence for demographic, behavioral, attitudinal and other subgroups. ENGINE Insights is not affiliated with BNY Mellon.
About BNY Mellon Investment Management
BNY Mellon Investment Management is a leading investment manager and one of the top U.S. wealth managers, with US $1.9 trillion in assets under management as of September 30, 2019. Through an investor-first approach, the firm brings to clients the best of both worlds: specialist expertise from eight world-class investment managers offering solutions across every major asset class, backed by the strength, stability, and global presence of BNY Mellon, one of the world's most trusted investment partners.
BNY Mellon Investment Management is a division of BNY Mellon, which has US $35.8 trillion in assets under custody and/or administration as of September 30, 2019. BNY Mellon can act as a single point of contact for clients looking to create, trade, hold, manage, service, distribute or restructure investments. BNY Mellon is the corporate brand of the Bank of New York Mellon Corporation (NYSE: BK). Additional information is available on www.bnymellon.com. Follow us on Twitter @BNYMellon or visit our newsroom at www.bnymellon.com/newsroom for the latest company news.
Investors interested in the fund should consider the investment objective, risks, charges and expenses of the fund carefully before investing. To obtain a prospectus that contains this and other information about the fund, investors should contact their financial representatives or visit im.bnymellon.com. Read the prospectus carefully before investing.
All investments involve risk including loss of principal. Bonds are subject to interest rate, credit, liquidity, call and market risks, to varying degrees. Generally, all other factors being equal, bond prices are inversely related to interest-rate changes and rate increases can cause price declines. Mortgage-backed securities: Ginnie Maes and other securities backed by the full faith and credit of the United States are guaranteed only as to the timely payment of interest and principal when held to maturity. The market prices for such securities are not guaranteed and will fluctuate. Privately issued mortgage related securities also are subject to credit risks associated with the underlying mortgage properties. These securities may be more volatile and less liquid than more traditional, government backed debt securities. High yield bonds involve increased credit and liquidity risk than higher rated bonds and are considered speculative in terms of the issuer's ability to pay interest and repay principal on a timely basis. Investing in foreign denominated and/or domiciled securities involves special risks, including changes in currency exchange rates, political, economic, and social instability, limited company information, differing auditing and legal standards, and less market liquidity. These risks generally are greater with emerging market countries. The fund may, but is not required to, use derivatives which involves risks different from, or possibly greater than, the risks associated with investing directly in the underlying assets. Derivatives can be highly volatile, illiquid, and difficult to value and there is the risk that changes in the value of a derivative held by the portfolio will not correlate with the underlying instruments or the portfolio's other investments.
BNY Mellon Securities Corporation, a registered broker dealer and subsidiary of BNY Mellon, is the distributor of the BNY Mellon Family of Funds.
This press release is qualified for issuance in the U.S. only and is for informational purposes only. It does not constitute an offer or solicitation of securities or investment services or an endorsement thereof in any jurisdiction or in any circumstance in which such offer or solicitation is unlawful or not authorized. This press release is issued by BNY Mellon Investment Management to members of the financial press and media and the information contained herein should not be construed as investment advice. A BNY Mellon Company.
1 BNY Mellon earnings as of September 30, 2019
2 As of 12-31-2018, Pension & Investments.
3 Unless explicitly noted, study question findings remained generally consistent (<5%) across household income, retirement savings, education level, geography, and other criteria and demographic splits.
4 "An investment in corporate and/or government bonds that pays investors periodic interest payments until their maturity dates."
5 Not all survey participants reported having investments outside the value of their primary residence; of those with an investment portfolio 60% reported having some fixed income allocation.
6 This figure varied significantly depending upon household income, with 60% of those with less than $50K vs. 43% of those with $50K or more.