Many investors fail to update portfolio

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Your Money

April 18, 2004|By JANET KIDD STEWART

DO AS I say, not as I do" isn't a phrase reserved exclusively for mothers, judging by a pair of investor surveys released this month.

In one of them, the Retirement Confidence Survey, released by the Employee Benefits Research Institute, investors showed overconfidence about their retirement security given current savings.

A separate survey for the Boston investment firm Eaton Vance Corp. found that although investors say they have become more risk-averse amid the stock market volatility of the past few years, few have made any changes to their risk profiles.

"Everyone says they have a [savings] plan, but few do, and even fewer follow one," said Duncan W. Richardson, chief equity investment officer for Eaton Vance.

42% changed mix

Just 42 percent of investors said they changed their asset allocation in the past year, according to the company's nationwide survey of 500 investors with median annual incomes of $100,000. Market research firm Penn, Schoen & Berland Associates of Washington, D.C., performed the study.

And among those who did reallocate, 40 percent increased their stock exposure.

Another part of the survey revealed that just 1 in 5 investors is familiar with the 2003 federal tax-law changes, and only 1 in 10 has made portfolio changes as a result. So much for all the outcries surrounding U.S. tax policy.

Nearly half of the people in the Employee Benefits Research Institute survey who said they haven't saved for retirement have at least some confidence they'll have a comfortable retirement, noting longer working years, inheritance and generous company pensions.

Institute officials say few workers contemplate that something could go awry with those plans, such as an unexpected illness or changes in corporate pension funding.

`Nation of optimists'

"America appears to be a nation of optimists when it comes to retirement, but for some people the retirement dream may turn into a nightmare," said Dallas Salisbury, the institute's chief executive. The group said unrealistic expectations are fueling the overconfidence.

Why do we say one thing and do another, even when our financial security is at stake?

For starters, good investment help is hard to find, despite a multibillion-dollar industry that caters to individual investors, said Peter Bernstein, an economic consultant and author of books on financial psychology.

Sure, there is a steady stream of advice coming from books, television and other media, in addition to the brokerage and financial advice industries.

But, as Bernstein points out, all one has to do is look at the barrage of conflicting advice to see that even the professionals are contradicting themselves.

"Left in the silence of their own rooms, ultimately, it's easier to do nothing than something," he said.

So what do those hot-shot money managers have that we haven't got?

Decisiveness, said Bernstein, describing a hedge-fund manager he knows personally.

`He acts'

"He acts, while I'm never quite certain," he said. "When I was an adviser to a foundation board, I remember a guy from a big bank always saying we ought to wait for less uncertainty to go ahead with some big plans. But things are never certain, and sometimes where we are now isn't optimal."

Avoiding broad strokes is one way to inject more decisiveness into your investing strategies, Bernstein said. "It's easier to make decisions when you're not swinging around wildly," he said.

Eaton Vance's Richardson suggests carving out some specific actions. Case in point: dividends.

The tax-law changes last year that put dividend-paying stocks back on equal footing with more growth-oriented stocks should be one of the trends that spur investors to stop sitting on their hands, he said.

"The interesting challenge today is that there aren't compellingly cheap assets in the bond or stock categories. Both have had incredible runs. The question becomes, where do we go from here? And I think getting back to companies that pay reliable, significant dividends will give returns that exceed bonds over a three- to five-year time horizon," Richardson said.

E-mail Janet Kidd Stewart at

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