42% Of Respondents Have No Idea What “Alternative Investments” Means by Jackson

Survey Overview

Jackson National Life Insurance Company® (Jackson®) and the Center for Financial Insight surveyed investors in January 2014 in an effort to gain insight into the current level of understanding of alternative investments from a select group of respondents. In addition to gauging basic alternative investment knowledge, the survey was designed to identify investor perception gaps that may assist in raising the standard and overall value of educational offerings in the alternative investment space.

Respondent Profile and Methodology

  • 574 investor respondents
  • Non-retired investors of any age group
  • More than $200,000 in investable assets
  • Survey was completed anonymously with the assistance of a third-party survey provider

Key Insights

While the full results of the survey provided a variety of useful insights on respondents’ alternative investment education level from a broad perspective, reviewing parceled segments of the results allowed Jackson and the Center for Financial Insight to perform deeper analysis and glean new observations from the data. The data below includes insights and analysis based on the Full Results, Age-Segmented Results (Data segmented by respondents’ age – Ages under 35, Ages 35-45, Ages 45-55, Ages 55-65 and 65+) as well as data reflecting only those 327 respondents currently working with an advisor.

Alternative Investments

At a high level, the investors who participated in Jackson’s 2014 Alternative Investment Education survey showed a broad lack of knowledge on alternative investments. Further, analysis of the age-segmented and advisor-only data revealed that when it comes to the world of alternative investments, the education gap is not limited to a select age group or type of investor. In fact, the confusion surrounding these types of investment vehicles is spread fairly equally across all demographics. However, while the data paints a dismal picture, select statistics representing an overall interest in additional education and knowledge in the alternative investment space provide a glimmer of hope, and an opportunity for all of the stakeholders in the financial services industry to work toward filling the gap.

Alternative Investments

Full Results (574 Respondents)

  • When asked to choose a definition of “alternative investments” from a list, 52 percent of survey respondents chose a widely accepted description (“anything that is not a stock, bond or cash”), while nearly 42 percent chose “I honestly have no idea what alternative investments means.”
  • When asked what portion of their investment portfolio includes alternative investments, nearly 40 percent of respondents chose “I don’t know.”
  • More than 37 percent of respondents reported they don’t have alternative investments in their portfolios, compared to less than 23 percent who currently have alternative investments in their portfolios. Both results are lower than the percentage of respondents who said they simply “don’t know” one way or the other (nearly 40 percent).
  • When respondents were asked the primary reason they don’t use alternative investments in their portfolios, 20.74 percent chose “what is an alternative investment?,” which was second only to the 23.96 percent who chose “they are unsafe/risky investments.” “I don’t understand them, they are too complex” was another popular response at 17.97 percent.
  • A majority of respondents (56.79 percent) said they don’t know how alternative investments perform in the market relative to other types of investments.
  • More than 19 percent of respondents, the second highest percentage behind “I don’t know,” believe alternative investments exhibit a low level of correlation with more traditional investments (which data supports when it comes to many alternative assets.1).

Alternative Investments

  • More than two-thirds of respondents believe alternative investments carry more risk than traditional investment products.
  • While not necessarily surprising that more than 41 percent of respondents do not want any hedge fund strategies in their portfolio, considering the largely negative media coverage of the hedge fund world since 2008, it is interesting how many respondents (one fourth) are open to these strategies.
  • In congruence with the overall responses to alternative education questions, another 33.80 percent simply don’t know enough about hedge funds to make a decision.
  • More than 60 percent of respondents chose “investments that help ensure that I will have sufficient income in retirement” as the characteristic most important to them when choosing investments, by far the highest percentage. Interestingly, the second highest result (31 percent) was “investments designed to provide the diversification I need to protect what I have, and provide modest returns,” a common selling point for certain alternative investment products.

Alternative Investments

  • When asked how they prefer to receive financial/investing knowledge and education, 43.03 percent chose “I want my advisor to explain potential benefits, risks and detail of products and investments in my portfolio.” Contrast this percentage (far and away the top result), with the fact that only 6.97 percent of respondents chose “I want my advisor to tell me what to do.”
  • “I prefer to do my own research online via financial news websites, blogs and other objective third-party sources” (nearly 26 percent) were the second most popular response in terms of how investors prefer to receive financial and investing knowledge/education.

Alternative Investments

Alternative Investments

See full PDF below.