The Markets February 21, 2007

ETFs and Income Growing Components of Portfolios

Investors increasingly turn to income investments and exchange-traded funds (ETFs).
Reported by

Investors considering ETFs most commonly have investment objectives of capital appreciation (57%) and building retirement savings (20%), according to an informal poll conducted on ETFConnect.com by Nuveen Investments. Bearing in mind the focus of the site where the information was gathered (self-described as “the most comprehensive industry gateway to Exchange-Traded Closed-End and Index Funds”), of investors looking to grow their retirement savings this year, 75% plan to use ETFs to achieve that end. Of those seeking income, 61% said they would increase their closed-end holdings.

Income investing is of growing importance to investors, the poll found: two-thirds of investors plan to maintain or increase their income investment holdings for 2007 and of those, 73% have identified or included capital appreciation, capital preservation, and income in the investment goals.

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ETFs that facilitate broad-market and sector exposure along with liquidity and relatively low expense ratios, have especially stirred investor interest, the report said. Three-quarters who are looking for portfolio growth in 2007 said they plan to increase ETF holdings during the year.

Investment Discipline

Most investors admit they lack a disciplined approach to establishing their portfolio goals and tracking their progress, with two-thirds admitting they do not have a conventional investment policy statement (IPS), the report said.

Of the minority who do apply an IPS in their investment decisions, most use year-over-year total return averages to measure portfolio performance (61%). Those that don’t have a formal IPS also use year-over-year total return averages (51%) but are also likely to measure portfolio performance against personal goals (43%).

Most responding investors also seem to be examining investments with a consideration to tax treatment: 62% of investors diversified their 2006 portfolios to allocate up to 25% to taxable and tax-free income-focused securities across multiple product structures such as closed-end funds and open-end mutual funds, the poll found.

Data & Research February 21, 2007

Financial Advice Underutilized in Retirement Planning

Only 10% of U.S. adults planning to retire have worked with a financial adviser to develop a plan.
Reported by

The age demographic most likely to seek financial advice is age 45 to 54 – doubtless a combination of proximity to retirement, and the ability to have accumulated enough assets to warrant such counsel – but only 15% in that age bracket work with an adviser. College graduates and those earning over $75,000 are twice as likely to be working with a financial adviser on retirement needs (20% each vs. 10% of the total population).

“Getting advice from a financial professional is so important yet so few are tapping into that resource,” according to Natalie Jobity, Vice President of Financial Services at Harris Interactive, which conducted the poll, in a news release.

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Ninety percent of Americans plan to retire, but nearly a quarter (22%) have not yet begun to plan for that event. Significantly, nearly half (41%) of single households have yet to begin planning for retirement, according to a Wall Street Journal Online/Harris Interactive Personal Finance Poll that surveyed 4,037 U.S. adults.

401(k)s Top Savings Vehicles

The most common savings vehicle among those planning to retire was an employer sponsored account such as a 401(k), but that was only used by 29% of those surveyed. Twenty-one percent of adults opened a separate retirement savings account or a Roth IRA, and 20% are investing in taxable stocks, bonds, mutual funds or annuities.

The minority who are planning for retirement seem to be doing it early, the survey found; the median age for beginning retirement planning is 33.3 years old. The median age at which 18- to 34-year-olds begin planning is 23.6; for 35- to 44-year-olds it jumps to 29.1; for ages 45-54 it is 35.6; and for those ages 55 and older, the median is 42.8, according to the survey.

Planning for retirement also seemed to correlate with education level, as those with a high school education or lower are least likely to plan for retirement and respondents with a college degree and those with the highest incomes are most active in retirement preparation. Just thirty-five percent of respondents with a high school level education have started planning for retirement, half the level of those with a college degree.

Sixteen percent of those with a high school education or less say they do not intend to retire, compared to 10% of the general population, and one-third (33%) of respondents who make under $35,000 have not started to plan for retirement.

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