As a consumer, it pays to know what the people trying to sell you stuff think of you.
Such as, we are ignorant and impatient. Full of unrealistic and ever-expanding expectations. Undisciplined and headed for disaster unless we change our ways.
That is what financial planners–those who sell us financial products and advice–think of us these days.
No need to get all worked up about it, because they’re right.
“Investors overestimate their knowledge in investments, and their expectations are way out of line,” Patricia J. Abram, senior vice president and national sales manager for American Skandia, told a gathering of financial planners in Ft. Lauderdale this month. “Put together the ignorance with the expectations, and you have a formula for disaster.”
Abram was the opening keynote speaker at a two-day seminar for financial professionals. Too bad her talk was just for the planners. Consumers would have learned quite a bit by hearing Abram talk about our “spiraling” expectations and our impatience. How we want everything right now–overnight delivery, fast Internet access, instant results, buy now, pay later. And how we’re not saving nearly enough because we think the stock market will do our savings for us.
A survey by Louis Harris & Associates she cited, for example, found 56 percent of investors think stocks will return at least 14 percent a year over the next decade, and 29 percent think it will be even more than that.
“Expectations are out of line,” Abram said, because the average return of stocks since 1926 has been only between 11 and 12 percent a year.
We expect a lot, but we don’t know nearly enough to justify our confidence. Abram referred to a survey by The Vanguard Group of mutual funds that shows the depths of our financial ignorance.
In the Vanguard survey, less than one half of 1,555 mutual fund investors could answer at least 10 out of 20 multiple-choice questions dealing with basic investment concepts. Only one in five got 70 percent, or 14 right. And this test was given not to the general public but to people who have money invested in mutual funds.
Here’s another example of a dangerous ignorance: The employer-sponsored 401(k) plan has become the savings vehicle of choice for working Americans, yet 48 percent of plan participants, according to a recent survey by the firm Sanford C. Berstein, “haven’t heard a thing” about their plan or received any educational materials since the enrollment meeting, Abram said.
“That’s scary,” she said.
And another 23 percent are getting their information about 401(k)s from the media, compared with only 10 percent who get it from a financial adviser affiliated with the plan.
“That’s even more scary,” Abram said.
Another big problem, she said, is that we know we need to save but don’t have the discipline to do it.
Abram played a video clip by B. Douglas Bernheim, a professor of economics at Stanford University, who has studied the saving habits of Baby Boomers since 1992. His most recent findings: Boomers will need to save five times as much money as they are doing now to maintain the same standard of living in retirement if Social Security benefits are reduced by 35 percent, and nine times as much if benefits are eliminated entirely.
“There is a general recognition among Baby Boomers that they are not saving enough,” Bernheim told me. “There is also a general belief they could save more. But they are not doing it.”
Abram’s message to the financial planners is that to succeed they will have to offer their clients more than just financial products or plans.
“I don’t believe we are in the financial business,” Abram said. “I believe we are in the communications business. Our job is to educate, communicate, motivate.”
SITES HELP WITH STOCK ANALYSIS
What do all those lines, bars and arrows mean? If you get confused when reading stock graphs and charts, you are not alone. Market charts and graphs provide data that show the trends in the market and individual stocks performance. If you’d like to know what all those lines and bars mean, here’s a few sites where you can pick up some pointers:
– Decision Point (www.decisionpoint.com/)–Check out the short course link on this site to get a quick lesson on the basics of technical analysis.
– Clear Station (www.clearstation.com/education/cover.shtml)–Learn the basics on how to read charts, determine market tendencies and monitor the short-term trends of stocks.
– Chartpatterns.com (www.chartpatterns.com/)–Symmetrical triangles, wedges, descending triangles, flags and pennants: You get a real dose of understanding charts here.
– CBS MarketWatch (cbs.marketwatch.com/news/primer/default.htx)–Contains an array of information in reading charts and useful tools for understanding the market.
— Knight-Ridder/Tribune
