The results are in! Roughly 260 people took the time to respond to the income investing survey and I thank y'all very much for being so generous with your time. First, the generalizations:
As you will recall, the survey included eight "mostly true" or "mostly false" statements. Most people answered all of the questions without explanation or analysis (as requested), and most of the analysis explained exceptions to the "in general" nature of the questions being asked. All of your comments were well thought out, most were right on target and much appreciated.
Unanswered questions were judged half right and half wrong because there were too many of them to label totally wrong and wind up with meaningful statistics. Still, as a class, those who responded barely achieved a passing grade. A composite grade of just 72% correct is pretty scary.
Only 20 people assessed all eight statements correctly.
Here are the individual item results, based on my forty years of investment experience, including 35 managing OPM (other people's money) professionally.
1. Tax deferred income is better than tax-free income. This turned out to be the easiest question of all, as 92.3% of you correctly labeled it "False". One lesson to be learned early in your investment life is to grow a personal, tax-free, portfolio. "Uncle" has dibs on your retirement plans--- all of them.
2. All individual investment portfolios eventually become retirement income portfolios. 38.5% of you failed to get the point--- you can't spend market value unless you sell the securities, and there is no guarantee that the market will cooperate with your retirement plans. Eventually, this one rings "True", loud and clear.
3. An income investment portfolio should have a stable market value. In thirty-five years of investment management, I've determined that the single biggest error investors make is their focus on the market value of income securities. Stable income yes; stable market value – not! Roughly 25% of you incorrectly put this one in the "True" column.
4. Income investors should seek out mutual funds with the highest "total returns" to insure increasing levels of income. You did even worse on this one. 27% thought that higher total returns mean higher income--- not at all. "Total Return" analysis is a mutual fund shell game. You can't spend the growth--- and you really should avoid open-end Mutual Funds as income providors.
5. Most often, market value changes will have no impact on the income generated from income-purpose securities. I was not surprised that so few respondents agreed with this mostly "True" observation. Clearly, too many investors (25%) are unclear on the nature of income securities.
6. 401(k) and IRA programs are excellent pension plans. Half of you, that's 50% people, think of your defined contribution, self directed, savings plans as pensions. Shame on everyone: the government, financial advisors, tax and estate professionals, employee benefits professionals, RIAs--- all of us.
7. Government bonds carry the lowest risk of loss, BUT they do fluctuate in market value. Nearly 25% of you missed the boat on this how-could-you-not-know-that "True" statement. My mouth stayed open for days.
8. Tax-exempt dividends in excess of 6% were paid without interruption throughout the financial crisis and remain available today. Also "True" at the time of the survey, and still true today--- and only a handful of you emailed me for an explanation.
In summary, there were four generally "True" and four generally "False" statements, and I do appreciate that individual circumstances may make for some slight change in assessment. But if this were a "college entrance exam" for future retirees, retirement planners, or investment managers--- well, barely passing just doesn't cut it.
Many of you will disagree with my assessment. That's fine, I expect to be beaten up a bit by people who are unfamiliar with my approach. But please be gentle, or at least civil.
Remember, your participation has earned you a free workshop, and thanks again for your input.
