The top financial-research topics of 2019 included a mix of behavioral science, investing trends, and market insights.
What we learned: Though a goals-based approach to financial planning can be extremely effective, our behavioral science team found that when asked about their goals, most clients simply state whatever is of greatest concern or priority. This worksheet helps advisors set clients up to reflect more fully on their goals and initiate a more rewarding financial plan.
From the author: “The most surprising finding from this research is also the most concerning: 73% of people can’t accurately state their top three financial goals when asked. In other words, many investors may be working toward the wrong goals. On the bright side, we found that a quick fix to the goal-generation process can help investors uncover goals that truly matter to them.” — Samantha Lamas, Behavioral Researcher
What’s up next: At Morningstar, we are constantly looking at what motivates people to invest and how those motivations can help keep them on track. In 2020, we plan to focus more on how people’s values impact their investing decisions, specifically when it comes to ESG investing.
What we learned: Morningstar’s Active/Passive Barometer indicated a slight rebound in active fund performance: 44% of active U.S. funds outperformed their average passive peer, and active funds’ success rates increased in 11 of 20 categories. However, we still don’t expect these funds to outperform passive ones in the long term.
From the author: “We included the distribution of surviving active funds’ 10-year excess returns for the first time in the midyear 2019 Active/Passive Barometer. This provides investors with a better understanding of the outcomes delivered by active managers and can help them make more informed choices when it comes to deciding between active and passive funds across Morningstar Categories.” —Ben Johnson, Director, Passive Strategies
What’s up next: In the coming year, we will explore how active funds have fared versus their passive peers in bear markets. We’ll also be assessing how strategic-beta funds have stacked up relative to their more traditional peers that track market-cap-weighted benchmarks.
What we learned: Morningstar’s quarterly Markets Observer illustrated the rising uncertainty about future market performance: Emerging- and developed-market stocks have been below the median forecast, and the equity markets have seen a fair amount of volatility. Later developments, like a global-trade slowdown and the Fed’s lowering of interest rates, also highlighted increasing market tensions.
From the author: “I’m always fascinated by the chicken-and-egg type of relationship between market participants’ expectations and what the market actually does. Which causes which? Where does it start? We’re exploring this topic in the latest Observer: the relationship between market expectations and interest rates.” —Amrutha Alladi, Associate Quantitative Analyst
What’s up next: We’ll keep an eye on interest-rate movements in the Observer in 2020. We are also working on incorporating duration and convexity factors into our fixed-income risk model.
What we learned: Poor financial health surfaces in people who are so nervous to make an investing decision that they don’t do anything with their money, as well as people who spend so freely that they damage their bottom line. Our research found that one way advisors can help clients address poor financial health is by encouraging them to extend their “mental time horizon,” or how far into the future they plan.
From the author:“The idea that money is not the defining measure of financial health is almost counterintuitive; however, this research finds that even the wealthy can be financially unhealthy. The most interesting part of Sarah Newcomb’s work on this topic is how she defines financial health: Instead of just a number on a balance sheet, a person’s financial health must include their emotional well-being.” —Samantha Lamas, Behavioral Researcher
What’s up next: In 2020, we will continue to break down how a person’s financial health doesn’t always improve with a salary increase. Our upcoming piece investigates how a person’s retirement readiness might decrease after getting a raise.
What we learned: This annual report, which evaluated 11 prominent HSA providers as both spending and investment accounts, found that Fidelity earned the highest scores across the board. Fees vary drastically across the board, from zero to $45 per year, and transparency from HSA providers is still a top issue.
From the author:“Though HSA providers have continually improved their offerings, there’s still much room for improvement. They have selected strong investment options, but investment menu designs could be further simplified. There’s also the issue of opportunity cost: Most providers require investors to keep $1,000 or $2,000 in the checking account before investing. And poor transparency makes it hard for individuals to shop for and compare HSAs.” —Leo Acheson, Associate Director, Multi-Asset and Alternative Strategies
What’s up next: Our research has focused on HSAs available to individuals, rather than those offered through employers, because HSA providers typically offer one standard option to individuals but customize their offerings for employers. However, we started gaining insight into employer offerings in 2019 and plan to continue delving deeper into this area in 2020.