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Advisor Insights

Looking Beyond the Markets

New research initiative focuses on why investors succeed—and fail.

This is a special time to be an investor. There is an ever-increasing array of low-cost investing options, high-quality data, and a range of vehicles investors can use to pursue their strategies. The result is proliferating choice and decreasing costs. However, there is still significant work to be done, both in terms of increasing the number of people who invest and in terms of challenges current investors face in reaching their goals. At Morningstar, we’re undertaking a new research project to answer a straightforward, but important question: What is needed to help investors succeed beyond good investments? Here’s an overview of our research effort.

Challenges Potential Investors Face
Investing provides the best opportunity for the public to build long-term wealth by participating in the economic engine and growth of society. Yet according to Gallup, only 54% of Americans invest in stocks in any form. The vast majority of those who do, do so through 401(k)s and IRAs, often defaulted in by employers and owning low balances. Among Vanguard 401(k) account holders, for example, the median balance in 2016 was $24,713. Companies’ 401(k) default programs help employees invest, but they often haven’t engendered an active interest in one’s financial future.

In addition to limitations in terms of participation, investors continue to struggle with other obstacles. Some of these obstacles are behavioral, including low savings rates, market-timing, and selling during downturns. Some of them are structural. According to Pew, for example, 52% of U.S. workers do not have access to an employer-sponsored retirement plan, and studies have shown that financial illiteracy is widespread around the world.

Thus, on one side, we have tremendous improvements in investments: solid returns, low costs, and many options. On the other side, there are two areas where improvements can be made: 1) helping more people become investors, if they so choose, and 2) helping investors reach their financial goals by going beyond the characteristics of investments available to them. To help investors succeed, our industry should be looking at both sides: the investment market (fees, performance, options) and the investors themselves (who invests and the behavioral and structural obstacles impeding success).

Why This Matters for the Industry
In the financial-services industry, we spend a great deal of time discussing and competing over the characteristics of financial products: risk/return profiles, costs, correlation, etc. These factors are important, and the industry should never stop seeking to improve the quality of the investments offered to investors. However, products are only a small part of the picture for investors and a small part of what is needed for the financial-services industry itself to prosper.

The real competition for investment products isn’t similar funds. It’s credit cards, mortgages, stagnant real wages, and expenses that eat away at every dollar of a person’s income. It’s fear and distrust of our industry. These are the things that keep people from investing in the first place, and among current investors, they divert money that might otherwise be invested. To look beyond markets (and the products our industry offers) is to look at the tremendous potential for people to become investors and for current investors to expand their efforts. The value to investors, and to the industry, of moving participation in investing from 54% of Americans to 55% is far greater than the value of a new exchange-traded fund with a slightly different asset class tilt than 100 others.

While the potential is there, how to realize it is unclear. In part, that’s because we simply don’t understand enough about the obstacles that investors face outside the markets. The solutions to those obstacles are unknown or complex; for example, it’s not obvious how to best help investors avoid self-destructive market-timing. To make progress, we need to better understand both the problems and the potential solutions.

A Not-So-New Initiative at Morningstar
Morningstar has long been a leader in providing high-quality data and research about investments, and that is perhaps what we’re best known for. In addition, for many years we’ve been tackling these broader issues of investing. Don Phillips’ powerful voice as a champion of investors is just one example, and this magazine regularly publishes “beyond the markets” research pieces. But our extensive work to help investors more broadly isn’t as well-known as our investment-focused research.

The Investor Success Project aims to change this. Morningstar’s mission is to create great products that help investors reach their financial goals. Toward that end, we’re building on our existing research on investor success and looking for gaps: unanswered questions that can help investors and the professionals who serve them succeed. The Investor Success Project will help answer these questions. Our research will focus on investors—who they are, what their goals are, and how the advisors and asset managers that serve them can make the most impact in helping them reach their goals. We don’t know what we’ll find, but we’ll share everything we learn—in the magazine, on Morningstar’s blog, and on We are committed to this research, sharing it, and integrating the lessons into our products. We look forward to the dialogue with you.

This article originally appeared in the April/May 2018 issue of Morningstar magazine. To learn more about Morningstar magazine, please visit our corporate website.