Important new research — Talking to Seniors About Volatility

Wednesday, June 2nd, 2010

Ear­lier this month, new research was released on how to talk to seniors about their investments.

Titled “Behav­ioural finance and the post-retirement cri­sis” and spon­sored by Allianz Insur­ance, this report com­piles find­ings on how older investors per­ceive risk and make finan­cial decisions .

Ten top psy­chol­o­gists, con­sumer behav­iour experts and behav­ioural econ­o­mists con­tributed to this report. Here’s how US advi­sor site Hors­es­mouth sum­ma­rized some of the sug­ges­tions on how to frame con­ver­sa­tions with seniors around risk and investing.

Hyper­aver­sion to loss:
Be very con­scious of the sen­si­tiv­ity to loss. In gen­eral, investors expe­ri­ence the pain of a loss twice as strongly as the ben­e­fit of a gain. For retirees, how­ever, the pain of a loss is five times stronger than the equiv­a­lent gain.

Desire for con­trol: Given their fear, you’d expect retirees to opt for pro­tec­tion and guar­an­tees — but stud­ies show the reverse is true. Many retirees shy away from prod­ucts with guar­an­tees because they don’t want to give up control.

The safety of “monthly income” When pre­sented as pro­vid­ing income, 70% of investors over 50 chose an annu­ity. Only 21% chose the exact same annu­ity when posi­tioned as an invest­ment solu­tion with monthly returns for life.

The impact of infla­tion Unless helped to think this through, there is a ten­dency for many seniors to focus on the nom­i­nal amounts they’ll be receiv­ing and to ignore the impact of inflation.

Get­ting the math You need to be sure that your con­ver­sa­tions are at a level clients can under­stand. Research shows that math abil­ity starts declin­ing at age 53; by 80, almost half of seniors have dif­fi­culty mak­ing sound finan­cial decisions.

Here’s a link to the full research report

http://​www​.allianz​in​vestors​.com/​d​o​c​u​m​e​n​t​L​i​b​r​a​r​y​/​R​F​I​b​e​h​a​v​i​o​r​a​l​F​i​n​a​n​c​e​/​A​l​l​i​a​n​z​_​D​O​L​_​R​F​I​_​R​e​s​p​o​n​s​e​.​pdf

And here’s a check­list from the report on hav­ing effec­tive con­ver­sa­tions around retire­ment income planning:

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Tags: Allianz, Allianz Insurance, Annuity, Consumer Behaviour, Conversations, Dol, Economists, Guarantees, Impact Of Inflation, Investment Solution, Math Ability, Older Investors, Psychologists, Retirement Crisis, Retirement Income, Rfi Response, Seniors, Sound Financial Decisions, Tendency, Volatility
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Articles You Can Send to Clients (July 15, 2009)

Friday, December 18th, 2009

As pref­aced in today’s newsletter:

Dur­ing this period of height­ened require­ments for com­mu­ni­ca­tions to your clients, keep­ing in touch with your net­work of clients and prospects is crit­i­cal. While there is no sub­sti­tute for one-to-one meet­ings and phone calls, weekly or peri­odic emails are an effec­tive way of stay­ing vis­i­ble and devel­op­ing frank and open dis­cus­sions with both clients and prospects.

Start­ing today, and every Wednes­day from today, as a ser­vice to you, we will be send­ing a list­ing of 3–5 arti­cles from high value sources (e.g., G&M, WSJ, NYTimes) that you may use to send to your clients and prospects as part of your com­mu­ni­ca­tions strat­egy. We will also include some help­ful pref­ac­ing notes that you may use as well.

Keep in touch, and , by the way, if and when you find use­ful arti­cles, we would be extremely grate­ful for your submissions.

Below is this week’s selec­tion of arti­cles that you can send to clients.

Here are three arti­cles that I thought you might find inter­est­ing which dis­cuss the eco­nomic out­look of Lak­sh­man Achuthan, one of the fore­most econ­o­mists in the US, the out­look for stocks from the Wiz­ard of Whar­ton, Jeremy Siegel, and an arti­cle from the Wall Street Jour­nal about the oppor­tu­nity in income/dividend pay­ing stocks (as a gen­eral heading).

The Reces­sion is Over!
ECRI declares the reces­sion over with the US econ­omy track­ing up to 2.4% in the third quarter…

http://​www​.slate​.com/​i​d​/​2​2​2​2​7​42/

Source: Slate​.com/​W​a​s​h​i​n​g​ton Post

There is a great deal of skep­ti­cism about the econ­omy, and many mixed offer­ings in terms of opin­ion on out­look. The Slate​.com arti­cle, The Reces­sion is Over!, dis­cusses the con­trast­ing view of Lak­sh­man Achuthan, of ECRI (Eco­nomic Cycles Research Insti­tute), one of the most highly regarded inde­pen­dent econ­o­mists, known for a long list of accu­rate and pre­scient eco­nomic fore­casts, who points out that three sig­nif­i­cant lead­ing indi­ca­tors are cur­rently flash­ing green.

They’re (ECRI) the Spocks of the eco­nomic fore­cast­ing crowd—unemotional, unin­vested in any­thing but the logic of what his­tory and their dash­board tell them. “From our van­tage point, every week and every month our call is get­ting stronger, not weaker, includ­ing over the last few weeks,” says Achuthan. “The reces­sion is end­ing some­where this sum­mer.” In fact, it may already be over.

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Jeremy Siegel: ‘The Mar­ket Will Stage Another Recov­ery’,
Knowledge@Wharton, June 24, 2009

http://​knowl​edge​.whar​ton​.upenn​.edu/​a​r​t​i​c​l​e​.​c​f​m​?​a​r​t​i​c​l​e​i​d​=​2​267

Jeremy Siegel, Whar­ton School Pro­fes­sor, Direc­tor of Wis­dom Tree ETFs and author of the invest­ing clas­sic, Stocks for the Long Run, says that now that the reces­sion will not turn into a depres­sion call stocks are poised for a recovery.

Siegel: Well, of course, we had a tremen­dous down­turn from Jan­u­ary to March, a plunge. And we’ve had recov­ery back to those Jan­u­ary lev­els, basi­cally. So year-to-date, we’re sort of even on the mar­ket. Actu­ally, in Asia, we’re well above it. Mar­kets are about 20% higher than the year-end. For the emerg­ing mar­kets and the Asian mar­kets, there’s been a much bet­ter recov­ery, because there’s been a bet­ter eco­nomic recovery.

It’s always very hard to pre­dict the stock mar­ket. It’s cer­tainly tak­ing a breather now. I main­tain that if we can keep oil at the $70 level, and if inter­est rates on long-term bonds, 10-year bonds, don’t go much above 4%, the mar­ket will stage another recov­ery that could bring it up another 15% to 20% — really, by year-end. It’s hard to know exactly when that will take place. But I think peo­ple really see [that] the recov­ery is com­ing. Again, just like they were relieved that, “Oh, it’s not a depres­sion, it looks like it’s end­ing,” [they see] we are get­ting some recov­ery. I think if the [price of oil] and inter­est rates … remain sta­ble and low, we will put more money in stocks. There’s still over $4 tril­lion in money funds that are earn­ing about 1% or less, which is not as attrac­tive as rates that I believe could be moved into the mar­ket, once prospects of the recov­ery seem more certain.

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Bright Out­look for Income Investors
July 4, 2009 — Wall Street Jour­nal — By Tom Lau­ri­cella
Out of last year’s tur­moil in mar­kets a bright spot has emerged for investors look­ing for income — The pay­out on dividend-paying (or income-paying) stocks has gone up as a result of share prices falling fur­ther than payouts.

The main point of this arti­cle is that bat­tered high qual­ity div­i­dend stocks as well as gov­ern­ment bonds are now offer­ing higher real rates of return as a result of infla­tion run­ning at 2% or lower.

Yes, div­i­dends may have plunged — but share prices have fallen fur­ther. Trans­la­tion: The per­cent­age pay­out of many dividend-paying stocks has actu­ally gone up. Some tra­di­tional yield plays — such as util­i­ties — look attrac­tive. Bond funds, aside from U.S. gov­ern­ment bond funds, offer other options.

And investors shouldn’t dwell too much on yields that seem low. What mat­ters is how they com­pare to inflation.

“When investors see a yield of 4% or even 3.5%, it looks like a low-yield invest­ment,” says Fran Kin­niry, head of the invest­ment strat­egy group at Van­guard Group. “But with infla­tion run­ning at 2% or lower, the yields on fixed income or even equi­ties aren’t that poor.”

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Tags: Communications Strategy, Dashboard, Dividend Paying Stocks, Dividend Stocks, Earnings, Economic Cycles, Economic Forecasting, Economic Forecasts, Economic Outlook, Economists, Income Dividend, Jeremy Siegel, Lakshman, Leading Indicators, Offerings, Open Discussions, Periodic Emails, Prospects, Recession, Skepticism, Slate, Spocks, Vantage Point, Wall Street Journal, Washington Post, Wharton, Wsj
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