Don’t Go Changing Self-directed Investors

Insights Powered by Cogent Reports®

DIY Investors Live in a Constant State of Uncertainty and That’s OK

A client recently commented to me that self-directed investors are more challenging to serve. Representing only one-third of all affluent investors, these do-it-yourselfers neither work with traditional financial advisors nor use advice from other sources including distributors and asset managers. A look at investor sentiment during the market volatility in Q1 2018 sheds some light on key differences in the self-directed investor’s mindset compared with the traditionally advised (those currently working with a financial advisor).

Overall, affluent investors started 2018 with optimism and hope in the current investing environment. Yet concern about inflation and the impact of trade sanctions began in late January. Financial advisors, asset managers and distributors all dusted off and updated their market volatility messaging and outreach in anticipation of negative market action. Following February’s 10% correction in the S&P 500 Index and the VIX reaching a peak of 37 for only the second time in the past five years, investors ended the first quarter with far less optimism. In fact, the top-cited emotion in March was uncertainty along with a significant increase in fear.

Affluent Investor Sentiment, Top Six Selected Emotions(CLICK CHART TO ENLARGE)

Before the February correction, the traditionally advised were significantly more optimistic compared with self-directed investors and remained this way even after the market dropped 10%. Similarly, far more traditionally advised investors expressed feeling hopeful as in January and then again in March compared with investors who manage 100% of their portfolio on their own. That said, confidence levels among traditionally advised investors appear to have taken a dip, as they were double the level of the self-directed until after the correction.

In comparing these two populations, most telling is the high level of uncertainty among self-directed investors that was evident even before the February market volatility. In fact, uncertainty is consistently the top-cited emotion month-over-month among self-directed investors, far higher than the levels that traditionally advised investors reported even
in March. Moreover, unlike traditionally advised investors, whose top emotions are regularly optimism, hope and confidence, do-it-yourself investors live with feelings of uncertainty about the investing environment in both up and down markets.

Traditionally Advised and Self-Directed Investors, Top Six Selected Emotions(CLICK CHART TO ENLARGE)

The influence of financial advisors on their clients is clear, as we see despite some downward trends in optimism and confidence, traditionally advised investors weather the emotional aspect of market volatility fairly well. Interestingly for self-directed investors, there is “more of the same” feelings of uncertainty and low levels of confidence during the
first three months of 2018. This highlights a need for distributors and asset managers to differentiate messaging to self-directed investors with acknowledgment of the continued uncertainty in these investors’ mindset toward investing. Furthermore, firms serving self-directed investors would benefit by accepting the uncertainty as part of the fabric of
a self-directed investor’s perception—not something to fix but instead a quality to recognize and respect in ongoing outreach.

 

 

We’ll be reporting on investor sentiment quarterly as we’re interested to see how changing market dynamics affect affluent investors’ attitudes and investing behaviors. To get the first look at these data, subscribe to our newsletter, Cogent Thoughts, or check out our Tracking Affluent Investor Sentiment page here.

Subscribe to Cogent Thoughts

This entry was posted in Brand and Messaging, Financial Services and tagged by Julia Johnston-Ketterer. Bookmark the permalink.
Julia Johnston-Ketterer

About Julia Johnston-Ketterer

Julia Johnston-Ketterer is a senior director in the Syndicated Research division. She has more than 15 years of experience leading research initiatives on the client- and supply-sides of the financial services industry focusing on investors, advisors and broker-dealers. Prior to joining Market Strategies, Julia was vice president of business development for Market Probe, Inc. and research associate for Richard Day Research, where she managed financial services clients and conducted client satisfaction studies and PR research programs. Julia also spent ten years at Fidelity Investments. While there, she built a research team that provided primary and secondary research to internal marketing and communications partners. Julia earned an MBA in finance and communications from Simmons School of Management and a bachelor’s degree in French and international relations from the University of Wisconsin-Madison. While she can claim having twice bungee-jumped in New Zealand, Julia’s current adventures outside of work include being a hockey mom, taking hikes with her dog and planning her next family beach vacation.

Leave a Reply

Your email address will not be published.