Investors Three Times More Likely To Shop Around for Barbecues than for Bonds
According to a new study released today by Charles Schwab, consumers are
far less likely to shop around for financial products than for household
products such as TVs and appliances and the disparity is striking when
it comes to buying bonds. Even among the 61% self-described bargain
hunters, most of whom know that pricing on financial products vary
greatly, confusion and inertia overcome the desire to get the best deal
when buying bonds: while 51% will shop around for the best price on a
gas grill, only 17% will do the same for a bond.
“In this low interest rate environment, consumers are hungering for
yield. The more you pay for a given bond, the less yield you’ll earn on
it,” said Peter Crawford, senior vice president at Charles Schwab. “The
majority of retail investors are informed shoppers and know that bond
pricing varies a lot from firm to firm, yet very few of them take the
time to shop around. Our message is simple: investors shouldn’t feel
resigned to pay blindly for bonds.”
Bargain Hunting For Bonds: How Investors Shop is a Charles Schwab
study that explores the mindset and behavior of individual investors
when shopping for consumer goods and financial products, with an
in-depth look at attitudes towards bond buying. The online survey
conducted by Koski Research was completed by 514 individual investors in
the U.S. with a minimum of $100,000 in total investable assets. The
study took place from May 16 to June 1, 2013.
Comparison Shop ‘Til They Drop
When shopping for household products and consumer goods, our survey
indicates that investors are committed to finding a good deal. Study
respondents say they are extremely likely to compare prices for cars (80
percent), airline tickets (77 percent), HD TVs (71 percent) and gas
grills (51 percent). More than 90 percent of investors are confident in
their ability to find the best price for these items.
When making household purchases over $1,000, 63 percent of investors
surveyed believe it is extremely important to find the best price. A
large majority (82 percent) say they do extensive research before making
a buying decision, with 88 percent saying they collect three or more
prices for comparison, and 65 percent saying their research spans a few
days or even weeks.
Barbecues vs. Bonds: A Dichotomy
Despite their bargain hunter ways, our survey indicates that investors
aren’t as likely to search for the best deal when it comes to financial
products. The contrast is particularly striking when it comes to buying
bonds. Fifty-five percent of study respondents say they are extremely
likely to shop around for mortgages, 48 percent and 39 percent say the
same about credit cards and auto insurance, respectively; yet only 17
percent are extremely likely to shop around for bonds.
“Fewer than one in five investors shop around for bonds, which we think
has less to do with investor behavior and more to do with industry
barriers that get in the way of investors’ interests,” said Crawford.
“There is no industry standard for how bond prices are marked up, and as
a result investors are unclear about how much bonds cost and uncertain
about how to shop for the best prices.”
How Much is That Bond in the Window?
According to the Schwab study, fifty-four percent of investors believe
bond prices vary from broker to broker; and 94% of that group believes
prices vary moderately or a lot.
So why aren’t these investors shopping around? Schwab’s study found that:
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More than half (53 percent) of investors say they do not know how to
get the best price on bonds;
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43% say it is too complicated to comparison shop for bonds and 47% say
it is too hard to see what a bond costs.
“Investors who are focused on value shouldn’t be confused when it comes
to bond investing because there are resources that can help. Technology
has made the bond market far more transparent for investors, and savvy
shoppers now have the ability to bargain shop for bonds,” said Crawford.
“Every basis point counts,” he reinforced. “By getting the lowest price
on a given bond, investors can increase their yield."
Crawford offers three tips for bond investors:
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Ask your broker how he or she is compensated on your bond purchase,
and make sure you understand any commissions or mark-ups built into
the price (or yield) as well as any additional fees. Unless your
broker has a standard mark-up policy, you should ask before every
trade.
-
Shop around: compare bonds as well as prices. Just like prices for the
same bond can vary from brokerage firm to brokerage firm, so can
availability. Is your firm able to shop around on your behalf to find
the best available bond for your needs, or do they focus on what they
have in their own inventory? Doing a little homework to find the right
bond and the right price can really pay off.
-
Tap into education: take advantage of industry resources, like SIFMA’s investinginbonds.com.
The retail bond market has evolved and clients now have much better
access, pricing and guidance than ever before, adds Crawford. “Online
platforms like Schwab BondSource® provide investors with valuable tools
that can help bring greater clarity to the bond purchasing process. We
want to make sure investors are aware that they have the ability to
quickly and easily compare prices on the same bond across the different
trading networks available to Schwab, and to research prices on bonds
that are available from multiple dealers – and are not limited to just
bonds in Schwab’s inventory.”
Schwab’s BondSource® offers access to over 36,000 new issue and
secondary bond offerings from more than 200 dealers1,
connecting investors to multiple major bond trading platforms, not just
one. Schwab’s online platform offers clients access to professional
research and user-friendly bond search and filter functionality. Bond
investors are automatically presented with the lowest price available to
Schwab for a bond, and can easily cross-check that price against others
Schwab has received for the same bond by searching for the CUSIP on
Schwab BondSource. All clients have access to Schwab’s experienced,
dedicated team of 100 fixed income specialists2 who can
provide further guidance.
About Bargain Hunting For Bonds: How Investors Shop
The Bargain Hunting For Bonds: How Investors Shop was an online survey
of U.S. investors conducted by Koski Research for Charles Schwab. The
study has a 4.4 percent margin of error at the 95% confidence level. A
total of 514 respondents completed interviews. Survey respondents had a
minimum of $100,000 in total investable assets, ranged in age between 25
and 75, do investing on their own and have heard of bonds or fixed
income investments. Fifty-one percent of survey respondents own or have
owned individual bonds. Survey respondents were not asked to indicate
whether they had accounts with Charles Schwab. All data is self-reported
by study participants and is not verified or validated. Investors
participated in the study between May 16 and June 1, 2013. Detailed
findings can be found at www.aboutschwab.com/press/research.
About Charles Schwab
At Charles Schwab we believe in the power of investing to help
individuals create a better tomorrow. We have a history of challenging
the status quo in our industry, innovating in ways that benefit
investors and the advisors and employers who serve them, and championing
our clients’ goals with passion and integrity.
More information is available at www.aboutschwab.com.
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Disclosures
Through its operating subsidiaries, The Charles Schwab Corporation
(NYSE: SCHW) provides a full range of securities brokerage, banking,
money management and financial advisory services to individual investors
and independent investment advisors. Its broker-dealer subsidiary,
Charles Schwab & Co., Inc. (member SIPC,
www.sipc.org),
and affiliates offer a complete range of investment services and
products including an extensive selection of mutual funds; financial
planning and investment advice; retirement plan and equity compensation
plan services; compliance and trade monitoring solutions; referrals to
independent fee-based investment advisors; and custodial, operational
and trading support for independent, fee-based investment advisors
through Schwab Advisor Services. Its banking subsidiary, Charles Schwab
Bank (member FDIC and an Equal Housing Lender), provides banking and
lending services and products. More information is available at www.schwab.com
and www.aboutschwab.com.
Brokerage Products: Not FDIC Insured • No Bank Guarantee • May Lose
Value
Fixed income securities are subject to increased loss of principal
during periods of rising interest rates. Fixed income investments are
subject to various other risks including changes in credit quality,
market valuations, liquidity, prepayments, early redemption, corporate
events, tax ramifications, and other factors.
Schwab reserves the right to act as principal on any Bond transaction.
In secondary market principal transactions the price will be subject to
our standard mark up in the case of purchases and a mark down in the
case of sales, and also may include a profit or loss to Schwab. When
trading as principal, Schwab may hold the security in its own account
prior to selling it to you, or may resell it after buying from you and,
therefore, may make (or lose) money separately from the markup on the
transaction.
1 As of December 2012
2 As of January 2013
Investing involves risk, including possible loss of principal.
Koski Research is unaffiliated with the Charles Schwab Corporation and
its affiliates.
