Investor priorities and motivators
The importance of income investing is already high across the globe but, according to a survey commissioned by Legg Mason, it continues to grow
Nearly 7 in 10 (69%) investors worldwide say that investing in income generating products is an extremely important or important priority. Another 23% say it is at least somewhat important.
* Asian investors are more likely than investors in Europe and North America to say investing in income-generating products is extremely important (29% vs. 23% in both Europe and North America).
Growing and protecting wealth are prime motivators for income investing, although the emphasis on each varies by region* In all markets surveyed (except Japan) at least 6 in 10 investors say investing in income-generating products is extremely important or important. Indeed, no more than 12% (except Japan at 20%) say investing in income generating-products is not important to their investment strategy.
Not only do investors worldwide say that investing for income is important, but 57% indicate that it is of growing importance.
* While more than half of investors globally say investing for income is more important than five years ago, only 48% of investors in Europe feel this way. This is significantly below Asia (60%), Australia (60%) and
North America (56%).
There are stark differences, however, on this measure within Asia and within Europe.
- Within Asia, 80%-plus of investors in Hong Kong, Singapore and China say investing in income-generating products is more of a priority than five years ago, whereas only 33% of investors in Japan and 45% of investors in Taiwan feel this way.
- Within Europe, 67% of Italian investors say investing in income-generating products is more of a priority, followed by Spain (49%) and the UK (47%). Only 38% of investors in France and Germany, however, say investing for income is more important than five years ago.
When it comes to investing for income, investors in Asia and Australia are decidedly more focused on growing their wealth than investors in North America and Europe; the latter two regions are comparatively more focused on peace of mind.
All regions think about protecting their wealth when investing for income, but investors in Asia are significantly less motivated by the notion of maintaining their current lifestyle; they are looking to protect and grow their wealth.
Motivations when investing in income generating products
||Protect my wealth
||Maintain my current lifestyle
||Peace of mind
- Within Europe, UK and German investors are most likely to cite growing wealth as a motivator when investing for income (62% and 58% respectively), while France and Italy are least likely (43% and 40% respectively).
- Income investors in Spain, by a wide margin, are most likely to say that peace of mind is their primary motivator when investing for income (58%).
- Within Asia, Japan varies from the other markets surveyed with only 46% saying growing wealth is a motivator.
There is a ‘reality gap’ between what investors expect and receive from income investments
A common thread throughout countries in North America, Australia, Europe and Asia is investors are often obtaining returns on their income-producing investments that are less than they were seeking.
Market volatility: of most concern in the US, Canada, Spain, Italy, Australia, Japan, Singapore and TaiwanThe largest gaps between desired and actual rates of return are seen in Taiwan (4.0% gap), China (3.4%), Japan (2.9%), Spain (2.9%), Australia (2.7%) and the U.S. (2.6%). The smallest gaps are in Italy (1.3%), Germany (1.5%) and the UK (1.5%).
Given this reality gap, it is not surprising that investors express anxiety about meeting their income needs
Sizable percentages of investors say they are worried about market volatility, higher taxes, inflation, and the low rate environment, although the specific causes of anxiety vary by country.
- (50%-plus cite as cause of anxiety) and of least concern in Germany (21%) and the UK (36%).
- Higher taxes: of most concern in the US, France, Spain and Italy (50%-plus cite as cause of anxiety) and of least concern in Hong Kong (23%), Singapore (34%) and Japan (36%).
- Inflation: a widespread concern in many markets, with the highest percentages expressing anxiety about it in China (76%), Taiwan (68%) and Australia (67%) and the lowest percentages in Japan (29%), Italy (45%), France (46%) and Hong Kong (46%).
- Low rate environment: a widespread concern, with the highest percentages expressing anxiety about it in the UK (60%), Germany (58%), Canada (57%) and Australia (55%), and the lowest in Spain (23%).
Global trend toward greater investor engagement and focus
In the wake of the 2008 financial crisis, investors have been forced to confront new realities in the search for income. As a result, they are becoming more engaged in the selection of investment strategies, seeking more knowledge and opportunities.
* Globally, 80% of investors say they would like to become more knowledgeable about investing for income. The only markets where fewer than 7 in 10 investors express this sentiment are Germany (55%) and Japan (66%); yet even in these countries a majority are looking to learn more.
* Additionally, 75% of investors globally say they are always on the lookout for better income opportunities. Japan is notably lower on this measure at 46%.
The hunger for knowledge presents opportunities for financial advisers
Investors are becoming more engaged and putting greater emphasis on income generation. Yet sizable proportions of these investors do not feel they have a good understanding of the range of income-producing products available to them.
% who feel they do not have a good understanding of available income-producing products
- North America - 37%
- Europe - 34%
- Asia - 31%
- Australia - 39%
Lack of confidence in knowledge of income opportunities is highest in Spain (48%) and Japan (59%) and least apparent in China (where only 10% feel they do not have a good understanding).
Most importantly, investors are crying out for help. Among those using an adviser, solid majorities say they want their advisers to bring them more and/or better opportunities for generating investment income.
% who want their adviser to bring them more and/or better opportunities to generate income
- North America - 71%
- Europe - 67%
- Asia - 90%
- Australia - 85%