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Voice of the American Shareholder Quarterly Poll – Wave 7 Prepared for: BetterInvesting Final Report December 9, 2005 Table of Contents Study Objectives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Overview of Methodology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Major Findings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Detailed Findings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 What Does A Typical Shareholder Look Like, and How do they Behave?. . . . . . . . . . . . . . . . . . . 22 How Do Shareholders Feel about the Economy and Stock Market? . . . . . . . . . . . . . . . . . . . . . . . 31 What are the Effects of Energy Costs and Health Care Costs on Investors? . . . . . . . . . . . . . . . . . 49 What do Shareholders Think About the Economic Impact of Hurricanes Katrina and Rita?. . . . . . 54 What do Investors Think of the Bush Administration and the 2008 Presidential Election? . . . . . . 60 How do Shareholders Feel about Energy Prices and Consumption? . . . . . . . . . . . . . . . . . . . . . . . 64 How do Investors Feel About the Real Estate Market?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .69 What do Investors Think About Investing in 2006? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74 Demographics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82 Detailed Methodology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86 Appendix. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .95 2 Study Objectives BetterInvesting commissioned Harris Interactive to conduct a series of research studies to better understand the attitudes and behaviors of American investors. This study represents the seventh wave of research conducted for BetterInvesting. The previous waves were conducted in September 2003, January 2004, May 2004, November 2004, February 2005, and June 2005. By regularly reporting on these findings, BetterInvesting expects to capture the Voice of the American Shareholder. The survey questions are designed to measure a few key trends in shareholders’ portfolios and investing behavior as well as to understand shareholders’ attitudes and views toward current issues. Specifically, this wave of research focused on the following topics: Investment profile, goals, strategy, and future plans; Views toward the stock market and outlook for 2006; Perceptions of real estate investments and politics; Views toward energy prices and consumption; and, Economic effects of Hurricanes Katrina and Rita 3 Overview of Methodology Sample includes 1,006 shareholders defined as U.S. adults aged 18 or older who currently own individual stocks or stock mutual funds. Interviewing was conducted between October 12 and 24, 2005. The interview averaged 10 minutes in length. All interviewing was conducted online using the Harris Poll Online (HPOL) database consisting of several million members who have agreed to participate in survey research. 4 Executive Summary 5 Executive Summary This series of research has tracked key measures of investor behavior and attitudes since September 2003. Over this time, investors have demonstrated consistency in their overall investment strategy. In each wave of research we find that large majorities of investors do not plan to make changes to their portfolios. Shareholders maintain a moderate level of risk in their investment portfolio. Investors recognize the long-term value of stocks and consistently indicate that if they had a sum of money to invest, they would invest roughly half in individual stocks or stock mutual funds. Investors are prompted to make changes to their portfolio as a result of things that have a direct impact on them personally. For example, planning for retirement and the cost of living including health care costs and energy costs. Investors would recommend that new investors maintain a diversified portfolio, save more of their pay in their 401(k) plan and understand the range of investment options available to them. 6 Executive Summary (continued) However, while investors recognize the benefits of stocks and stock mutual funds and seem to be in this for the long-term, they do express ongoing concern about the economy and stock market. The BetterInvesting Shareholder Confidence Index is at an all-time low at just 1.2 (on a scale from -100 to +100 where 0 is the midpoint). The proportion of investors who believe the US economy is moving in the right direction is at its lowest level since September 2003. Fewer think it’s a good time for new investors to get involved in the stock market and increasing numbers think it’s a good time to move money into safer, lower risk investments. While men continue to have greater confidence than women, their confidence has also dropped over time. As compared to November 2004, more think inflation and unemployment will increase and that the stock market and home values where they live will decrease in 2006. 7 Executive Summary (continued) Further influencing investor attitudes and behavior are energy prices and the impact of Hurricanes Katrina and Rita. Many indicate that they are saving or investing less because of energy prices they pay. Roughly the same proportion indicates that energy prices would influence them to change their portfolio a great deal or a fair amount. Seven in ten report that they have changed their behavior or spending habits because of current energy prices. However, investors also indicate that they think the energy industry is currently considered the top investment. And though most do not plan to change their investment strategy because of Hurricanes Katrina and Rita, they do think that the damage to oil rigs and refineries, the impact of shipping on the Gulf Coast and government spending on the recovery effort will impact the stock market. 8 Executive Summary (continued) Like many Americans, the war in Iraq is also something investors are concerned about. Nearly half say that the government should reduce spending for the war in Iraq or pull out of Iraq as a way to pay for hurricane recovery efforts. A stable government in Iraq is the top thing investors would wish for, nearly double the proportion who wished for this last year. 9 Major Findings 10 What does the typical American shareholder look like, and how do they behave? Among investors, the top two most owned investments are individual stocks (70%) and stock mutual funds (67%) Individual retirement accounts controlled by the investor (59%) and individual retirement accounts through an employer (47%) are also common investments. Most investors plan to make no change to their investments over the next six months, a finding that is consistent since the inception of this research. As in previous waves, almost four in ten (39%) plan to increase their cash holdings. Men are more likely to increase their investments in cash (44%) than women (32%). Men are also twice as likely as women to indicate they will increase their investment in bonds (11% of men and 5% of women). The average investor has a portfolio that is moderately risky. Men are more likely to say their investments are very risky (43%) compared to women (26%). 11 How do shareholders feel about the economy and stock market? Confidence in the U.S. economy continues to fall, from a high of 71% in January 2004 to a current low of 46% who have a great deal or a fair amount of confidence that the economy is moving in the right direction. Compared to a year ago, confidence in the economy is down 9 percentage points. While confidence has fallen among both men and women, men (50%) still have more confidence than women (39%). Fewer than four in ten (38%) investors believe it’s a good time for new investors to get involved in the stock market. This is the lowest level of support for this attitude since September 2003 (62% agree). Fewer men (41%) and women (34%) believe it’s a good time for new investors to invest, compared to 49% and 40% respectively, in May 2005. Even fewer (29%) believe stocks are a better bargain now than they were one year ago. Both men and women agree at similar rates (29% each). Nearly half (49%) of investors believe it’s a good time to move money into safer, lower risk investments, a record high for this series of research. For the first time, more than half (55%) of women feel it’s a good time to move money into safer investments. Nearly half (45%) of men agree. 12 How do shareholders feel about the economy and stock market? (cont.) The BetterInvesting Index has reached an all-time low, currently at +1.2. This indicates that the average shareholder has lost confidence and holds a view of the market that is tenuously positive. The Index indicates that women (-5.1) are less confident compared with men (+5.2) and that older investors (65+ = -8.9) are less confident compared to younger investors (35 or less= +8.3). The best investments in the current economy are energy (46% top three), real estate (37%) and pharmaceutical (35%). The largest increase has been in the energy industry, rising from 32% in November 2004 to 46% today. Two-thirds of investors who say energy is the best investment today indicate the potential growth of the industry as the top reason. Topping the list of worst investments are the automotive industry (44% top three), travel (36%) and government (29%). Of those who say automotive is the worst industry, more than half (57%) say their costs are out of control. Compared to 2004, more shareholders say the automotive industry is not a potential growth industry (37% v. 21%) and their services and products are out of date (27% v. 12%). 13 What are the effects of energy costs and health care costs on investors? While fewer investors report that health care costs are impacting their ability to save or invest, many (58%) indicate energy costs have caused them to save or invest less. Both men (57%) and women (60%) say they are saving less because of energy prices. Taken together, a majority of investors (62%) indicate that either health care costs or energy costs are causing them to save or invest less. Factors most likely to prompt changes in investors’ portfolios are things that affect them personally including the economy (62%), retirement needs (61%) and energy prices (58%). Factors that are less likely to prompt investors to change their investments include the War in Iraq (29%), Hurricanes Katrina and Rita (26%) and the unemployment rate (23%). 14 What do shareholders think about Hurricanes Katrina and Rita? While most investors will not change their investments as a result of the hurricanes (82% not likely), many do see an impact to the stock market. Majorities of investors say the stock market will be affected as a result of damage to oil rigs and refineries (85%), shipping along the Gulf Coast (76%) and government spending on the recovery efforts (78%). A majority of investors (87%) say the hurricanes did have a direct impact on the economy. Inflation is the most commonly mentioned (54%) effect of Hurricanes Katrina and Rita. When asked what steps the government should take to reduce recovery costs, nearly half (47%) of investors think the government should reduce expenses in Iraq or pull out. As a result of the hurricanes, 83% of investors say the construction industry is a good investment. Insurance (55%) and travel (51%) top the list of worst investments following the hurricanes. 15 What do investors think of the Bush administration and the 2008 presidential election? A majority of investors (62%) think the Bush administration hurt them. Women (69%) are more likely than men (58%) to say Bush had a negative impact on investors. The same holds true for Democrats (89%) and Independents (70%) as compared to Republicans (30%). Senator John McCain (20%), Senator Hillary Rodham Clinton (19%) and Former Mayor Rudolph Guiliani (18%) would lead the pack if the 2008 presidential election were held today. Investors say Guiliani (16%) would likely enact the best policies for investors while Rodham Clinton (26%) would bring about the worst policies for investors. 16 How do shareholders feel about energy prices and consumption? Nearly half (49%) of investors continue to feel oil prices will increase. This is down slightly from May 2005, when 54% felt this way. Almost seven in ten (69%) investors have made some change in their spending behavior or investment strategy as a result of current energy prices. Younger investors (35 or less) are more likely to reduce spending in other areas (61%) and nearly half have considered buying a more fuel efficient or hybrid car (48%). Almost half of shareholders (47%) hold major oil companies primarily responsible for current energy prices. Older investors (65 or older: 51%) are more likely than younger investors (35 or less: 40%) to hold major oil companies responsible. 17 How do investors feel about the real estate market? More than half of investors (57%) believe real estate is a good investment. About four in ten (43%) believe real estate is a better investment than it was one year ago, but only 22% believe it will be better one year from now. Over one-third (35%) of investors are currently invested in some type of real estate. Residential rental properties top the list of investments (16%), with vacation residences (13%) and R.E.I.T.’s (10%) rounding out the top three investments. Men are slightly more likely (37%) than women (32%) and older investors (65 or older: 41%) are more likely than younger investors (35 or younger: 25%) to own real estate as an investment. 18 What do investors think about investing in 2006? More than three-in-four investors (78%) predict that the market will improve or stay about the same in 2006. However, compared to predictions investors made about the second half of 2005, significantly fewer investors believe the market will improve in 2006 (26% vs. 36% who thought the market would improve during the second half of 2005). Paying off debt and saving for retirement are the two most important financial goals for 2006. Young adults, 35 or less, are less concerned with saving for retirement (8%) as compared to middle-aged shareholders (36-49 year olds: 30%) and 65+ shareholders (17%). Large majorities of investors predict that the costs for daily expenses such as energy (86%), food (85%) and gasoline (84%) will be on the rise in 2006. Compared to last year, investors express concern about other economic indicators as well. Nearly eight in ten (78%) investors think inflation and interest rates (78%) will increase. More than one-third (34%) believe the stock market will decrease in the 19 next year. What do investors think about investing in 2006? (cont.) A stable government in Iraq (22%) and gasoline at $2.00 per gallon (22%) tie as the number one gift investors would like to receive this holiday season. Compared to last year’s holiday season, the percentage of investors who would like a stable government in Iraq nearly doubled. Women (27%) more than men (19%) indicated a stable Iraqi government would make the best holiday gift. Investors of all ages, but particularly those 65 and older, are likely to recommend that new investors have a more diversified portfolio, save more in a 401(k) plan and be aware of alternatives within their retirement plan. 20 Detailed Findings 21 What Does the Typical American Shareholder Look Like, and How Do They Behave? 22 The typical investor has more money invested in stock mutual funds than individual stocks. Total Amount Invested in Individual Stocks and Stock Mutual Funds Individual Stocks (%) Stock Mutual Funds (%) Jan ‘04 May ‘04 Nov ’04 Feb ‘05 May ‘05 Oct ’05 Jan ‘04 May ‘04 Nov ‘04 Feb ‘05 May ‘05 Oct ‘05 Less than $5,000 41 41 36 42 29 30 30 32 25 30 19 20 $5,000 $9,999 10 9 12 9 8 7 8 10 6 5 7 6 $10,000 $49,999 20 28 20 25 24 26 29 31 25 32 23 25 $50,000 $99,999 9 7 6 7 10 8 9 11 13 14 16 12 More than $100,000 19 15 13 17 23 20 24 16 15 18 25 27 $108,900 $64,200 $63,400 $156,200 $146,200 $190,800 $84,100 $56,300 $67,900 $94,400 $103,000 $184,000 $7,000 $8,350 $5,700 $8,700 $14,000 $12,100 $19,000 $14,640 $16,160 $17,400 $35,000 $31,300 MEAN MEDIAN Q1541: You mentioned that you have the following investments. About how much do you have invested in the following…? Base: All Shareholders (n=1,006) 23 Shareholders maintain a wide variety of investments. Types of Investments Owned Sept. ‘03 Jan ‘04 May ‘04 Nov ‘04 Feb ‘05 May ‘05 Oct ’05 % % % % % % % Individual stocks (not including stock options or restricted stocks from the company that I work for) 70 71 67 66 67 69 70 Stock mutual funds 68 67 70 69 72 69 67 Individual retirement account that I control (i.e., IRA, KEOGH, SEP) 54 56 51 52 59 56 59 Individual retirement accounts through my employer (i.e., 401(k) retirement savings plan or 403(b) retirement savings plan, or profit sharing plan) 49 52 52 50 51 51 47 Bonds or bond funds 34 33 35 35 37 36 34 Stock options or restricted stocks from the company that I work for 12 15 17 12 12 15 9 Other type of investment not mentioned 24 21 21 25 25 26 28 Q430: Please indicate which types of investments or investment accounts you personally have. Do you currently have . . .? Base: All shareholders (n=1,006) 24 For the most part, shareholders plan to make no changes to their investments over the next six months. Plans for Investments Over The Next Six Months Increase (%) 2004 Make No Change (%) 2005 2004 Decrease (%) 2005 2005 2004 Jan May Nov Feb May Oct Jan May Nov Feb May Oct Jan May Nov Feb May Oct Individual stocks 34 26 29 28 25 26 62 67 63 64 67 65 5 7 8 8 8 9 Stock mutual funds 31 24 24 28 23 22 64 71 69 68 69 69 5 5 7 4 8 9 Individual bonds 6 8 8 8 11 8 89 88 85 87 84 88 5 3 6 5 5 5 Bond mutual funds 10 11 11 11 12 9 84 84 83 85 83 86 5 5 6 3 5 5 Cash 39 38 38 35 40 39 52 54 52 55 52 53 9 8 10 10 8 8 Alternative investments 8 5 7 8 8 5 90 92 89 88 87 91 2 2 4 4 5 4 Other investments not mentioned 15 16 15 15 17 15 83 81 81 82 81 82 2 3 3 3 3 3 Q610: Again thinking about your investment portfolio, over the next six months, do you plan to increase, decrease or make no change in your investments in each of the following? Base: All shareholders (n=1,006) 25 Three in ten men plan to increase their investment in individual stocks and more than four in ten plan to increase their investment in cash compared to 18% and 32% of women, respectively. Plan to Increase Investments Over The Next Six Months By Gender Increase (%) Total Male Female Individual stocks 26 30 18 Stock mutual funds 22 27 15 Individual bonds 8 8 7 Bond mutual funds 9 11 5 Cash 39 44 32 Alternative investments (such as hedge funds, private equity and managed futures) 5 6 3 Other investments not mentioned 15 18 11 Q610: Again thinking about your investment portfolio, over the next six months, do you plan to increase, decrease or make no change in your investments in each of the following? Base: All shareholders (n=1,006; Male=628; Female=378) 26 Whether they have $10,000 or $100,000 to invest, shareholders would continue to invest roughly half in stock mutual funds and individual stocks. Percentage Allocated to Each Investment Have $10,000 to Invest Have $100,000 to Invest Total (Mean) Total (Mean) Jan ‘04 May ‘04 Feb ‘05 May ‘05 Oct ‘05 Jan ‘04 May ‘04 Feb ‘05 May ‘05 Oct ’05 Individual stocks 32 26 26 26 29 27 25 24 24 21 Stock mutual funds 26 27 27 21 25 27 27 28 24 24 Cash 14 16 14 16 14 13 15 14 14 19 Bond mutual funds 10 10 10 10 9 9 10 10 12 11 Individual bonds 6 5 6 7 6 6 6 7 8 7 Alternative investments 3 3 4 3 5 5 5 5 5 4 Other investments 7 11 12 14 9 13 13 12 12 14 Q515: If you had $10,000/$100,000 to invest, how much would you invest in each of the following? Base: All shareholders (n=1,006) Note: For this question, half of all respondents were asked to allocate $10,000 across the investments listed above and the other half were asked to allocate $100,000 across the investments listed above. 27 Shareholders’ investments are a mix of risk levels but, on average, are moderately risky. Risk Level of Current Investments MEAN = 38% 36% 35% Sept ‘03 Jan ’04 4.0 4.1 May ’04 3.9 Nov ’04 Feb ’05 3.9 3.9 37% 36% 37% 34% 34% 32% 31% 30% Sept '03 May '04 Oct ‘05 3.9 36% 30% 30% 27% Moderately Risky (4) Jan '04 34% 34% 34% 33% 32% 28% Very Risky (5, 6, 7 Net) May ’05 4.0 Nov '04 Not Risky (1, 2, 3 Net) Feb '05 May '05 Oct '05 Q605: Investment risk is typically defined as a greater likelihood that your portfolio may lose value but is often associated with higher returns. On a scale from 1 to 7, in which “1” represents “not risky at all” and a “7” represents “very risky”, how would you characterize most of your investments? Base: All shareholders (n=1,006) 28 The risk level of investments across the past two years has remained relatively constant at about 4.0, indicating an investment strategy that has a moderate level of risk. Mean Risk Level of Investments Very Risky 7 6 5 4 4.1 4 4 3.9 3.9 3.9 3.9 Mean Risk Level 3 2 Not at all Risky 1 Sept '03 Jan ‘04 May ‘04 Nov ’04 Feb ‘05 May ‘05 Oct ’05 Q605: Investment risk is typically defined as a greater likelihood that your portfolio may lose value but is often associated with higher returns. On a scale from 1 to 7, in which “1” represents “not risky at all” and a “7” represents “very risky”, how would you characterize most of your investments? Base: All shareholders (n=1,006) 29 Slightly more than four in ten male shareholders characterize their investments as risky while less than 3 in 10 female shareholders do the same, a finding that has held over time. Risk Level of Current Investments By Gender Sept ’03 Jan ’04 May ’04 Nov ‘04 Feb ‘05 May ‘05 Oct ’05 % % % % % % % 36 38 35 34 34 36 37 Men 42 45 41 43 40 40 43 Women 27 28 27 24 27 30 26 Moderately Risky (4) 30 32 28 31 32 30 27 Men 29 28 26 28 30 28 27 Women 31 38 32 35 35 32 28 33 30 37 34 34 34 36 Men 28 27 33 29 30 32 30 Women 41 33 41 41 39 33 45 4.0 4.1 3.9 3.9 3.9 4.0 3.9 Men 4.2 4.2 4.0 4.2 4.1 4.0 4.1 Women 3.7 3.9 3.8 3.6 3.7 3.8 3.5 Very Risky (5, 6, 7) (Net) Not Risky at All (1, 2, 3) (Net) Mean Q605: How would you characterize most of your investments on a scale from “not risky at all” to “very risky”? Base: All shareholders (n=1,006) 30 How Do Shareholders Feel about the Economy and Stock Market? 31 Confidence in the U.S. economy has fallen to its lowest level since the survey began. Confidence in the U.S. Economy 71% 57% 60% 54% 55% 51% 49% 46% 54% 46% 45% 43% 40% 29% A Great Deal/A Fair Amount (Net) Sept '03 Jan '04 May '04 Not Much/None At All (Net) Nov '04 Feb '05 May '05 Oct '05 Q410: How much confidence do you have that the United States’ economy is generally moving in the right direction? Base: All shareholders (n=1,006) 32 Just half of men now have confidence in the economy, a drop of 5 percentage points since May and is at its lowest level since September 2003. Confidence in U.S. Economy By Gender - A Great Deal/Fair Amount (Net) Total Men Women 75% 71% 57% 62% 60% 65% 63% 57%57% 55% 54%55% 49% 50% 50% 53% 53% 50% 46% 40% 39% Sept '03 Jan '04 April '04 Nov '04 Feb '05 May '05 Oct '05 Q410: How much confidence do you have that the United States’ economy is generally moving in the right direction? Base: All shareholders (n=1,006) 33 Continuing the downward trend from May, fewer than four in ten shareholders agree it’s a good time for new investors to get involved in the stock market. “It’s a good time for new investors to get involved in the stock market.” 62% 51% 50% 50% 45% 38% 24% 30% 26% 25% 27% 33% 23% 24% 15% Strongly/ Somewhat Agree Jan. '04 Neither agree nor disagree May '04 Nov '04 Feb '05 Q601: How strongly do you agree or disagree with each of the following statements? Base: All shareholders (n=1,006) 29% 29% 20% Strongly/ Somewhat Disagree May '05 Oct '05 34 The numbers of men and women who think it’s a good time for new investors to get involved in the stock market are at their lowest levels since the survey began. % Strongly/Somewhat Agree: “It’s a good time for new investors to get involved in the stock market.” 66% 62% 56% 54% 51% 50% 50% 56% 50% 49% 50% 44% 45% 45% 41% 38% 34% Total Men Jan. '04 40% April '04 Nov '04 Women Feb '05 Q601: How strongly do you agree or disagree with each of the following statements? Base: All shareholders (n=1,006) May '05 Oct '05 35 Less than three in ten agree that stocks are a better bargain than a year ago. A plurality neither agree nor disagree with this statement. “Most stocks are a better bargain now than they were one year ago.” 43% 41% 38% 37% 35% 29% 29% Strongly/ Somewhat Agree Jan. '04 44% 41% 33% 26% 26% Neither agree nor disagree May '04 Nov '04 Feb' 05 Q601: How strongly do you agree or disagree with each of the following statements? Base: All shareholders (n=1,006) 31% 33% 26% 29% 30% 28% Strongly/ Somewhat Disagree May '05 Oct '05 36 Male and female shareholders are equally likely to agree that stocks are a better bargain now than they were one year ago. %Strongly/Somewhat Agree: “Most stocks are a better bargain now than they were one year ago.” 43% 41% 29% 39% 38% 37% 35% 29% 26% 26% Total 29% 26% 31% 33% Men Jan. '04 May '04 Nov '04 33% 35% 26% 29% Women Feb' 05 Q602: How strongly do you agree or disagree with each of the following statements? Base: All shareholders (n=1,006) May '05 Oct '05 37 The proportion of shareholders who agree that it’s a good time to move money into safer investments continues to increase, with nearly half now holding this belief. Only one in five disagree with this statement. “It’s a good time to move money into safer, lower risk investments from higher return/higher risk investments.” 47% 49% 40%42% 37% 34% 36% 32%32% 32% 29% 30% 35% 30% 24%26%24% 21% Strongly/ Somewhat Agree Jan. '04 Neither agree nor disagree May '04 Nov '04 Feb '05 Q601: How strongly do you agree or disagree with each of the following statements? Base: All shareholders (n=1,006) Strongly/ Somewhat Disagree May '05 Oct '05 38 The proportion of men and women who think it’s a good time to move money into safer investments continues to increase and for the first time, more than half of women feel this way. % Strongly/Somewhat Agree: “It’s a good time to move money into safer, lower risk investments from higher return/higher risk investments.” 55% 47% 49% 34% 37% 40% 46% 42% 39% 40% 49% 45% 44% 40% 41% 44% 33% 29% Total Jan. '04 Men April '04 Nov '04 Women Feb '05 Q601: How strongly do you agree or disagree with each of the following statements? Base: All shareholders (n=1,006) May '05 Oct '05 39 The BetterInvesting Index of Shareholder Confidence continues to fall, dropping to + 1.2. 100 October 2005 Component Scores for Each Item Included in BetterInvesting Index 80 60 40 19.3 20 10.9 9.3 7.8 5.0 1.2 0 -20 -40 Positive Neutral Negative Component Scores Q410 8.6 78.5 12.9 -4.2 Q611a1 25.7 65.1 9.2 16.5 Q611a2 22.2 68.9 8.9 13.3 Q605 36.6 27.2 36.2 0.4 Q602a1 21.2 29.7 49.0 -27.8 Q602a2 28.8 43.7 27.5 1.2 Q602a3 38.0 32.8 29.2 8.8 Question Jan May Nov Feb May Oct '04 '04 '04 '05 '05 '05 October 2005 BetterInvesting INDEX +1.2 S= 8.3 BetterInvest ing Index= 1.2 -60 -80 -100 Note: The BetterInvesting Index was calculated based on 7 components that reflect shareholder confidence in the economy and stock market and is rated on a scale from -100 to +100 where 0 is the midpoint. A more detailed explanation of the Index is found in the Detailed Methodology. 40 While shareholders’ confidence has declined among both men and women, men continue to have a more positive outlook (though less so than previously) than women. Male 100 Female 100 80 80 60 60 40 40 24.3 20 19.8 13.9 8.6 8.6 20 13.4 5.2 -40 -60 -80 3.4 6.9 -0.4 -5.1 0 0 -20 7.3 Jan May Nov Feb May Oct '04 '04 '04 '05 '05 '05 -20 Jan '04 May '04 Nov '04 Feb '05 May '05 Oct '05 -40 -60 -80 -100 -100 Note: The BetterInvesting Index was calculated based on 7 components that reflect shareholder confidence in the economy and stock market and is rated on a scale from -100 to +100 where 0 is the midpoint. A more detailed explanation of the Index is found in the Detailed Methodology. 41 The Index decreases with age and indicates a negative view of the market among older shareholders. Index Scores by Age Groups Index Scores Question Jan. ‘04 May ‘04 Nov. ‘04 Feb. ‘05 May ’05 Oct. ‘05 35 or less 22.5 18.8 17.0 16.5 15.1 8.3 36-49 24.0 15.9 15.6 7.8 8.5 5.8 50-64 18.5 14.1 6.8 4.6 1.1 0.4 65+ 13.9 2.1 -1.7 3.7 -4.9 -8.9 Less than 55 23.2 16.5 14.8 10.3 11.1 6.4 55+ 14.4 9.8 1.4 4.2 -3.8 -6.2 Note: The BetterInvesting Index was calculated based on 7 components that reflect shareholder confidence in the economy and stock market and is rated on a scale from -100 to +100 where 0 is the midpoint. A more detailed explanation of the Index is found in the Detailed Methodology. 42 The Index has declined among Midwestern residents but risen among those in the West. Index Scores by Region Jan. ‘04 May ‘04 Feb. ‘05 May ’05 Oct. ‘05 East 16.8 9.0 7.1 6.3 2.6 Midwest 21.3 14.2 4.1 8.0 -1.0 South 20.3 16.8 9.8 7.2 2.1 West 21.2 18.0 9.3 -2.0 0.5 Note: The BetterInvesting Index was calculated based on 7 components that reflect shareholder confidence in the economy and stock market and is rated on a scale from -100 to +100 where 0 is the midpoint. A more detailed explanation of the Index is found in the Detailed Methodology. 43 Many more investors indicate energy is the top industry to invest in compared to one year ago. Nearly half (46%) say this industry is one of the best industries to invest in given the current economy. Best Investments in the Current Economy-Top 3 Mentions Top 10 Mentions 32% Energy 46% 39% 37% 42% 35% Real Estate Pharmaceutical 27% Health Care Technology 32% 30% 19% Utilities 37% 25% 21% 23% Information Technology 17% 17% Banking & Finance Telecommunications 15% 20% 11% 9% Food & Beverage Nov '04 Oct '05 Q620: Thinking of the current economy, please indicate which three of the following industries you think are the best for investing now. Base: All shareholders (n=1,006) 44 Energy, real estate, and the pharmaceutical industry make up the top three best investments, relatively unchanged from 2004. Best Industry Rankings Best Oct ’05 Nov ’04 Energy 1 4 Real estate 2 2 Pharmaceutical 3 1 Health Care 4 5 Technology 5 3 Utilities 6 8 Information Technology 7 6 Banking and Finance 8 9 Telecommunications 9 7 Food and Beverage 10 10 Media 11 13 Retail 12 12 Insurance 13 11 Transportation 14 14 Automotive 15 18 Government 16 15 Education 17 17 Travel 18 16 45 While being in a potential growth industry is the top cited reason making an industry a good investment, shareholders evaluate industries on their individual merits. Why Particular Industry is Among Top 3 Best Investments Now Nov ‘04 Oct ‘05 Total Energy Real Estate Pharmaceutical Total Energy Real Estate Pharmaceutical % % % % % % % % They are a potential growth industry. 64 66 58 68 66 62 65 63 They are developing new products or services. 39 37 23 48 41 30 25 50 Their past performance indicates future promise. 43 39 54 45 39 37 47 41 They are a stable industry. 35 34 41 34 35 33 44 29 They are introducing products to new markets. 31 29 17 35 34 24 21 42 They are using the most advanced technology. 29 26 20 34 24 16 15 27 They operate effectively in volatile domestic markets. 24 22 28 24 22 25 21 23 They operate effectively in volatile international markets. 18 20 17 19 18 20 14 18 They are doing a good job on containing costs. 9 8 10 7 9 6 8 6 They are prepared to deal with the terrorism threat. 6 4 4 7 7 7 3 5 Other factors 20 27 21 26 23 27 24 22 46 Q630: What about the industry makes it the best industry to invest in now. Please select all that apply. Base: All Shareholders, Best/Second/Third Best Investment (n=1,006) When thinking about the worst industries in which to invest given the current economy, the automotive industry tops all. More than two times as many investors consider automotive the worst industry as compared to November 2004. Worst Investments in the Current Economy Top 10 Mentions 21% Automotive 44% 38% 36% Travel 27% 29% Government 21% Transportation 28% 21% 23% Retail 20% 21% Insurance 9% Real Estate Media 17% 21% 14% Education 12% Healthcare 19% 11% Nov '04 23% Oct '05 Q635: Once again, thinking of the current economy, please indicate which three of the following industries you think are the worst for investing now. Please indicate your first choice, second choice and third choice. Base: All shareholders (n=1,006) 47 The top cited reason why a particular industry is among the worst investments is that their costs are out of control. Why Particular Industry is Among Top 3 Worst Investments Now Nov ‘04 Oct ‘05 Total Automotive Travel Government Total Automotive Travel Government % % % % % % % % Their costs are out of control. 54 47 70 53 58 57 61 62 They are an unstable industry. 41 36 29 41 42 39 47 40 They are not a potential growth industry. 38 21 39 30 37 37 35 42 Their past performance indicates poor future performance. 34 17 48 29 37 33 35 41 They perform poorly in volatile domestic markets. 28 21 23 18 30 28 29 34 They are not prepared to deal with the terrorism threat. 30 13 28 45 25 16 34 28 Their services and products are out of date. 20 12 19 10 24 27 26 30 They perform poorly in volatile international markets. 21 11 14 20 21 18 24 29 They are using outdated technology. 19 20 9 23 21 24 20 27 Other factors 22 11 22 21 26 29 27 24 Q640: What about the [answer from Q606/1] industry makes it the worst industry to invest in now. Please select all that apply. Base: All Shareholders, Best/Second/Third Worst Investment (n=1,006) 48 What are the Effects of Energy Costs and Health Care Costs on Investors? 49 As compared to 2004, fewer shareholders are saving or investing less because of health care costs that they pay. Impact of Health Care Costs on Ability to Invest 53% 37% 41% 37% 23% 15% 6% Saving or investing less Saving or investing the same amount November '04 3% Saving or investing more No impact October '05 Q910: Thinking now of the health care costs that you pay, how have these affected your ability to save or invest? Are you…? Base: All shareholders (n=1,006) 50 About six in ten shareholders say energy prices have caused them to save or invest less. Impact of Energy Costs on Ability to Invest 58% 33% 3% Saving or investing less Saving or investing the same amount Saving or investing more Q912: Thinking now of the energy costs that you pay, how have these affected your ability to save or invest? Are you…? Base: All shareholders (n=1,006) 6% No impact 51 The impact of energy costs is affecting men and women at equal rates. Impact of Energy Costs on Ability to Invest - by Gender 58% 57% 60% 33% 35% 30% 3% Saving or investing less Saving or investing the same amount Total 3% 2% Saving or investing more Men Q912: Thinking now of the energy costs that you pay, how have these affected your ability to save or invest? Are you…? Base: All shareholders (n=1006); Male (n=628); Female (n=378) 6% 5% 8% No impact Women 52 Investors mention the economy as the factor that impacts their investment strategy most. Other commonly cited factors are their own personal retirement needs and rising energy prices. Factors Prompting Changes to Portfolio A great deal/A fair amount (Net) Not very much/Not at all (Net) The economy % 62 38 My retirement needs % 61 39 Rising energy prices % 58 42 Rising interest rates % 48 52 Rising health care costs % 45 55 Outsourcing of jobs overseas % 36 64 The war in Iraq % 29 71 Hurricanes Katrina and Rita % 26 74 Unemployment rate % 23 77 Terrorism % 19 81 Q935: To what degree is each of the following a factor prompting you to make changes to your investment portfolio? Base: All shareholders (n=1,006) 53 What do Shareholders think about the Economic Impact of Hurricanes Katrina and Rita? 54 The majority of shareholders do not plan on changing their investment strategy by directly or indirectly investing in industries which may benefit from the recovery effort. Likelihood of Changing Investment Strategy Post Hurricanes % Extremely/Very likely (net) 5 Somewhat/Not at all likely (net) 82 1% Extremely likely 4% Very likely 12% Likely 53% Not at all likely 30% Somewhat likely Q1000: How likely are you to change your investment strategy to either directly or indirectly invest in industries that may benefit from the recovery effort? Base: All shareholders (n=1,006) 55 Perhaps not surprisingly, construction is the most commonly mentioned industry investors think will be a good bet during the recovery effort. As far as poor investments go, insurance and travel top the list. Good and Poor Investments-Hurricane Recovery Good Investment Poor Investment Construction 83 1 Real estate 42 14 Energy 35 14 Utilities 33 15 Banking & Finance 27 11 Telecommunications 27 6 Health care 21 10 Technology 21 3 Transportation 21 18 Pharmaceutical 18 2 Retail 18 24 Information Technology 18 6 Food and Beverage 17 9 Insurance 13 55 Government 12 35 Education 8 12 Automotive 6 22 Media 6 12 Travel 4 51 Q1005/1010: As an investor, which of the following industries do you think will be good/poor investments because of their involvement with the recovery effort? Base: All shareholders (n=1,006) 56 Majorities of shareholders agree that the impact to the Gulf Coast economy and government spending related to the recovery effort will have a great deal or fair amount of impact on the stock market. Women and older adults are more likely to hold these views. Effects of Hurricanes Katrina and Rita % A great deal/fair amount summary Gender Age Total Men Women 35 or less 36-64 65+ % % % % % % Damage to oil rigs and oil refineries 85 81 90 90 64 87 Shipping along the Gulf Coast 76 70 86 76 57 84 Government spending on the recovery effort 78 74 84 65 62 87 Q1015: To what degree do you think the following effects of Hurricanes Katrina and Rita will affect the stock market? Base: All shareholders (n=1,006); Women (n=378); Men (n=628); 35 or less (n=143); 36-64 (n=665); 65+ (n=198) 57 Shareholders who are likely to change their investment strategy believe the hurricanes will have a greater negative impact on the economy compared to those who do not plan to change their investments. Effects of Hurricane Katrina on the Economy Hurricane Katrina Effects Any (Net) 87% 54% 30% 27% 17% Inflation Economic growth A recession Bursting of the housing bubble Q1020: Do you think the effects of Hurricanes Katrina and Rita will result in….? Please select all that apply. Base: All shareholders (n=1,006) 13% No impact on the economy 58 More than anything else, investors think that the government should reduce Iraq war expenses or pull out of Iraq altogether in order to fund hurricane recovery efforts. Government Steps to Reduce Cost of Recovery Effort 9% Increase budget deficit 14% Increase taxes 47% Reduce Iraq war expenses or pull out 31% Cut back services in other areas Q1025: As an investor, which one of the following do you think the government should do to help pay for these costs? Base: All shareholders (n=1,006) 59 What do Investors Think of the Bush Administration and the 2008 Presidential Election? 60 A majority of shareholders feel the Bush administration has hurt investors. Effect of Bush Administration on Shareholders 10% Helped alot 27% Helped a little 36% Hurt alot Hurt Helped (Net) (Net) 38% 62% 26% Hurt a little Q1150: In general, do you think George W. Bush’s administration has helped or hurt investors? Base: All shareholders (n=1,006) 61 Women are more likely than men to think the Bush administration has hurt investors. Democrats and Independents also share this opinion, while majorities of Republicans believe Bush has helped investors. Effect of Bush Administration on Investors -by Gender and Party Identification Gender Party Identification Total Men Women Democrat Independent Republican % % % % % % Helped (net) 38 42 31 11 30 70 Helped a lot 10 13 6 1 7 22 Helped a little 27 29 25 10 23 48 Hurt (net) 62 58 69 89 70 30 Hurt a little 26 26 28 31 28 21 Hurt a lot 36 32 41 58 42 9 Q1150: In general, do you think George W. Bush’s administration has helped or hurt investors? Base: All shareholders (n=1,006); Men (n=628); Women (n=378); Democrat (n=324); Independent (n=312); Republican (n=370) 62 If the 2008 presidential election were held now, one in five investors would vote for Senator John McCain with Senator Hillary Rodham Clinton and Former Mayor Rudolph Guiliani running close behind. However, they believe Senator Rodham Clinton will be the worst candidate and Guiliani the best when it comes to policies for investors. Potential Candidates and their Effects on Policy Would Vote For Best Policies For Investors Worst Policies For Investors % % % Senator John McCain 20 13 2 Senator Hillary Rodham Clinton 19 13 26 Former Mayor Rudolph Guiliani 18 16 5 Senator John Kerry 6 7 11 Former Senator John Edwards 5 5 2 Senator Bill Frist 3 6 11 Former Governor Howard Dean 2 2 9 Retired General Wesley Clark 2 2 8 Governor George Pataki 1 1 3 None of these 16 21 9 Decline to answer 8 15 14 Best Policies for Investors •Republican: Guiliani (31%) •Democrat: Clinton (27%) •Independent: None (28%) Worst Policies for Investors •Republican: Clinton (46%) •Democrat: Frist (22%) •Independent: Clinton (25%) Q1155: If the presidential election of 2008 were held today, which one of the following would you vote for? Q1160: Of the following potential presidential candidates, which one will implement the best policies for investors? Q1165: Of the following potential presidential candidates, which one will implement the worst policies for investors? Base: All shareholders (n=1,006); Democrat (n=324); Independent (n=312); Republican (n=370) 63 How do Shareholders Feel about Energy Prices and Consumption? 64 Roughly half of shareholders expect oil prices to continue to increase, down slightly from six months ago. Expectations for Price of Oil 54% 49% 39% 35% 12% 11% May '05 Increase Oct '05 Level off Q1045: Do you expect oil prices to continue to increase, level off or decrease? Base: All shareholders (n=1,006) Decrease 65 Seven in ten investors have taken some action as a result of current energy prices. Younger shareholders (35 or less) and those in the South are more likely to have reduced their spending or considered a fuel efficient car as a result of current energy prices. Actions Taken as a Result of Energy Prices Region Age Total East Midwest South West 35 or less 36-49 50-64 65+ % % % % % % % % % 69 59 65 78 71 74 76 68 58 Reduced my spending in other areas 50 43 45 61 48 61 52 50 40 Considered purchasing a more fuel efficient or hybrid car 35 21 32 46 38 48 33 32 31 Moved more money into safer investments 15 12 19 19 10 12 17 19 13 Changed my strategy to either purchase or sell investments in energy companies 10 10 9 10 14 10 14 9 8 Invested more in socially responsible funds or “green” companies 7 5 7 6 9 9 8 6 3 31 41 35 22 29 26 24 32 42 Any (net) None of these Q1050: As an investor, which of the following have you done as a result of current energy prices? Please select all that apply Base: All shareholders (n=1,006); East (n=227); Midwest (n=253); South (n=285); West (n=241); 35 or less (n=143); 36-49 (n=280); 50-64 (n=385);65+ (n=198) 66 Nearly half of shareholders think major oil companies are primarily responsible for the current energy prices, a finding that is more true in the Midwest and South. Responsibility for Current Energy Prices Region Age Total East Midwest South West 35 or less 36-49 50-64 65+ % % % % % % % % % Major oil companies 47 44 51 51 41 40 48 46 51 OPEC 16 20 20 12 14 18 15 13 18 Federal government 14 13 9 19 14 14 14 20 10 Consumers 12 11 9 13 15 11 16 12 10 War in Iraq 10 12 12 6 14 14 6 9 12 Gas stations 1 - * 1 2 2 1 * * Q1055: From your perspective as an investor, which one of the following do you think is primarily responsible for the current energy prices? Base: All shareholders (n=1,006); East (n=227); Midwest (n=253); South (n=285); West (n=241); 35 or less (n=143); 36-49 (n=280); 50-64 (n=385);65+ (n=198) 67 In both positive and negative ways, investors express their views about current energy prices. Energy Summary Total % Future of oil Prices will increase 49 Actions taken as a result of energy prices Any (Net) 69 Reduced spending in other areas 50 Considered purchasing more fuel efficient/hybrid car 35 Major oil companies are primarily responsible for current energy prices 47 Energy as top three best investment 46 Energy prices influenced changes to portfolio a great deal or a fair amount 56 Saving or investing less because of energy prices 58 68 How do Investors Feel About the Real Estate Market? 69 More than half of investors perceive real estate to be a good investment. Real Estate as an Investment 14%, Very good 7%, Poor 36%, Fair 43% 57% Fair/ Poor Very good/ Good 43%, Good Q1100: As an investor, how would you evaluate real estate as an investment today? Base: All respondents (n=1,006) 70 While most investors think real estate is a good or a better investment than one year ago, more than one-third think it will be worse a year from now. Predicting the Value of Real Estate Investments 43% 42% 36% 36% 22% 21% One year ago Better 12 months from now About the same Worse Q1103: Compared to one year ago, do you think real estate is a better investment, about the same or a worse investment? Base: All shareholders (n=1,006) 71 Besides their primary residence, just over one-third of shareholders invest in real estate including 16% who have residential rental properties, and 13% who own vacation homes. Real Estate Investments Invested in real state Residential rental properties Total 13% Vacation residence R.E.I.T. (Real Estate Investment Trust) Commercial properties Not invested in real estate % 16% 10% 35 Men 37 Women 32 35 or younger 25 36-49 33 50-64 40 65+ 41 6% 65% Q1111: Not including a home that is your primary residence, in which other kinds of real estate, if any, are you currently invested? Base: All shareholders (n=1,006); Men (n=628); Women (n=378); 35 or less (n=143); 36-49 (n=280); 50-64 (n=385); 65+ (n=198) 72 Women are more likely than men to invest in residential rental properties. Middle-aged investors are also more likely to invest in this type of real estate than the youngest shareholders. Type of Real Estate Investments by Gender and Age Gender Age Total Men Women 35 or less 36-49 50-64 65 and older % % % % % % % 35 37 32 25 33 40 41 Residential Rental Properties 16 13 19 9 17 19 16 Vacation Residence 13 13 13 11 10 14 20 R.E.I.T. 10 13 4 6 8 10 14 Commercial Properties 6 7 5 8 6 7 5 Any Q1111: Not including a home that is your primary residence, in which other kinds of real estate, if any, are you currently invested? Multiple response. Base: Invested in real estate (n=352); Men (n=225); Women (n=126); 35 and younger (n=53*); 36-49 (n=98*); 50-64 (n=90*); 65 + (n=111) *small base 73 What do Shareholders think about Investing in 2006? 74 Nearing 2006, more than half of investors predict the market will stay the same; one-quarter think it will improve and one-fifth think it will get worse. October 2005 Thinking ahead to 2006 May 2005 Thinking Ahead to 2nd Half of the Year 21%, Worsen 22%, Worsen 26%, Improve 36%, Improve 43%, Stay about the same Q1202: Thinking ahead to 2006, how do you think the market will perform? Base: All respondents (n=1,006) 51%, Stay about the same 75 The top cited financial goal for 2006 is paying off debt, followed by saving for retirement. Middle-aged shareholders (between 36 and 64) are more concerned with paying off debt and saving for retirement. Primary Financial Goals for 2006 Age Total 35 or less 36-49 50-64 65+ % % % % % Pay off debt 31 30 38 37 18 Saving for retirement 24 8 30 39 17 Saving for unexpected purchases 19 22 11 11 32 Saving to make a big purchase, such as a home, boat, car, vacation 9 23 10 3 3 Saving for a child’s education 5 7 9 2 - Other 12 9 2 9 29 Q1208: What is your primary financial goal for 2006? Base: All respondents (n=1,006); 35 or less (n=143); 36-49 (n=280); 50-64 (n=385); 65+ (n=198) 76 Large majorities of investors believe their daily expenses such as energy prices, cost of food and gasoline/home heating costs will increase in 2006. Additionally, more believe that inflation and unemployment will increase, while home values and the stock market will decrease as compared to 2004. 2006 Predictions on Costs and Markets Oct ‘05 Nov ‘04 Increase Stay the same Decrease Increase Stay the same Decrease Energy prices % 86 6 7 % n/a n/a n/a Cost of food % 85 1 14 % n/a n/a n/a Gasoline or home heating costs that I pay % 84 7 9 % n/a n/a n/a Health care costs that I pay % 80 2 18 % 87 11 3 Interest rates % 78 5 17 % 80 14 6 Inflation % 78 2 21 % 66 26 8 The national unemployment rate % 55 13 32 % 42 25 33 Home values in my area % 52 17 30 % 67 23 10 The stock market % 37 29 34 % 56 26 18 Q905: Thinking ahead to next year, do you think each of the following will increase, decrease, or stay about the same? Base: All shareholders (n=1,006) 77 Among investors, the top two holiday wishes for 2005 are a stable government for Iraq and gasoline prices at $2.00 per gallon. Compared to last year, the percentage of shareholders who would like a stable government in Iraq nearly doubled. Gifts Would Most Like to Receive this Holiday Season A stable government in Iraq 22% 12% 22% Gasoline at $2.00/gallon (regular) My portfolio's gainers outpace my losers by more than 3 to 1. 15% 13% A 20% reduction in my health insurance premiums 11% The Dow at 12,000 9% 10% A 5% interest-bearing checking account Extension of President Bush's tax break A 2% reduction in the umemployment rate A chance to buy into a hot IPO 17% 7% 8% 6% 7% 4% 4% 3% 5% NA Oil at $20 a barrel 20% NA Elimination of estate taxes 5% Men Women Q1210: As an investor, which one of the following gifts would you most like to receive this holiday season? Base: All respondents October 2005 (n=1,006); All respondents November 2004 (n=1,110) 78 More women than men ranked a stable Iraqi government as the number one gift they would like to receive this holiday season. Gifts Would Most Like to Receive this Holiday Season – by Gender Gender Total Men Women % % % A stable government in Iraq 22 19 27 Gasoline at $2.00/gallon (regular) 22 21 24 My portfolio’s gainers outpace my losers by more than 3 to 1 15 16 12 A 20% reduction in my health insurance premiums 11 10 13 The Dow at 12,000 9 11 7 A 5% interest-bearing checking account 7 7 7 Extension of President Bush’s tax break 6 7 4 A 2% reduction in the unemployment rate 4 5 4 A chance to buy into a hot IPO 3 3 2 Q1210: As an investor, which one of the following gifts would you most like to receive this holiday season? Base: All respondents (n=1,110), Men (225), Women (126) 79 More than 6 in 10 shareholders would advise new investors to have a more diversified portfolio and save more of their pay in a 401(k) plan. Advice for New Investors 64% Have a more diversified portfolio 60% Save more of their pay in 401(k) plan Have a better understanding of the investment alternatives within their retirement plan 55% Buy less stock in the company they work for 31% Move more aggressively to reallocate or rebalance their retirement portfolio in view of changing market conditions 27% Buy more money market funds, CDs and cash equivalents 21% 17% Rely more on a professional investment advisor 12% Rely less on a professional advisor Buy more bonds or bond funds 11% Buy fewer technology or technology stock funds 10% Buy fewer growth stocks or growth stock funds 8% 80 Q1215: If you could advise new investors on what to do for 2006, what would you tell them? Base: All respondents (n=1,006) Older shareholders would advise new investors to have a diversified portfolio, save more in their 401(k) plan and better understand the investment alternatives available to them. Advice to Investors Age Total 35 or less 36-49 50-64 65+ % % % % % Have a more diversified portfolio 64 49 67 70 66 Save more of their pay in 401(k) plan 60 43 62 63 70 Have a better understanding of the investment alternatives within their retirement plan 55 37 53 61 65 Buy less stock in the company they work for 31 17 29 29 47 Move more aggressively to reallocate or rebalance their retirement portfolio in view of changing market conditions 27 10 30 25 39 Buy more money market funds, CDs and cash equivalents 21 23 18 23 21 Rely more on a professional investment advisor 17 18 9 17 25 Rely less on a professional investment advisor 12 7 12 13 15 Buy more bonds or bond funds 11 10 9 11 13 Buy fewer technology stocks or stock funds 10 9 9 9 11 8 6 6 6 14 12 17 13 14 6 Buy fewer growth stocks or growth stock funds Something else Q1215: If you could advise new investors on what to do for 2006, what would you tell them? Base: All respondents (n=1,006); 35 or less (n=143); 36-49 (n=280); 50-64 (n=385); 65+ (n=198) 81 Demographics 82 Shareholder Demographics Gender Total % Male Female 61 39 35 years old or less 36-49 50-64 65+ MEAN Marital Status Single, never married Married Divorced Separated Widowed Living with partner Total % 21 62 7 1 3 5 Children in Household Under 18 0 1 2 3+ MEAN Age Total % 75 12 9 4 0.4 Total % 21 30 22 27 49.4 Race/Ethnicity White Black/African-American Asian or Pacific Islander Native American or Alaskan Native Mixed racial background Other race Hispanic Decline to answer Total % 77 7 4 1 1 * 8 2 83 Shareholder Demographics (Cont’d) Education High school graduate or less Some college College (e.g., B.A., B.S.) Graduate school (e.g., M.S., M.D., Ph.D.) Party Identification Total % 27 20 28 17 Republican Democrat Independent Total % 35 33 33 Employment Employed full-time Employed part-time Self-employed Not employed, but looking for work Not employed and not looking for work Retired Student Homemaker Total % 47 8 11 3 1 27 9 7 Political Philosophy Conservative Moderate Liberal Total % 33 45 21 84 Shareholder Demographics (Cont’d) Household’s Total Net Worth Less than $50,000 $50,000 to $99,999 $100,000 - $249,999 $250,000 or more Not sure/ Decline to answer Mean Investable Assets Total % 12 12 14 37 25 $585,400 Less than $50,000 $50,000 to $99,999 $100,000 - $249,999 $250,000 or more Not sure/ Decline to answer Mean Household Income Less than $50,000 $50,000 to $99,999 $100,000 to $149,999 $150,000 or more Decline to answer Mean Member of Investment Club Total % 25 35 19 8 14 $89,251 Total % 10 90 Total % 4 7 89 Current Member Former Member Never a Member Region Heard of BetterInvesting Yes No Total % 28 14 11 22 25 $402,821 East Midwest South West Total % 23 21 32 23 85 Detailed Methodology 86 Detailed Methodology The Voice of the American Shareholder Quarterly Poll Wave 7 was conducted by Harris Interactive on behalf of BetterInvesting. Interviewing was conducted between October 11 and October 24, 2005 among a nationally representative sample of 1,006 U.S. adults aged 18 and older who currently have investments in individual stocks or stock mutual funds. The length of the questionnaire was 10 minutes in length, not including the demographics. SAMPLE SELECTION Harris Interactive maintains the Harris Poll Online database (HPOL) comprised of several million respondents who have agreed to participate in survey research. The HPOL database was used as the sample source for this study. E-mail addresses for respondents in the database have been obtained from over 100 sources, including the HPOL registration site, Yahoo!, HPOL banner advertisements, and MSN/Hotmail. Qualified respondents for this study were U.S. adults age 18+ who identified themselves as currently having investments in individual stocks or stock mutual funds in response to the question “Please indicate which types of investments or investment accounts you personally have.” ONLINE INTERVIEWING PROCEDURES Interviews were conducted using a self-administered, online questionnaire, via proprietary, web-assisted interviewing software. The HPOL interviewing system permitted online data entry of interviews by the respondents. Questionnaires were programmed into the system with the following checks: 1. 2. 3. 4. 5. 6. 7. Question and response series Skip pattern Question rotation Range checks Mathematical checks Consistency checks Special edit procedures 87 Detailed Methodology (cont’d) ONLINE INTERVIEWING PROCEDURES (cont’d) To maintain the reliability and integrity in the sample, each invitation contained a password that is uniquely assigned to that e-mail address. A respondent was required to enter the password at the beginning of the survey to gain access into the survey. Password protection ensured that a respondent completed the survey only one time. To increase the number of respondents in the survey and to improve overall response rates, up to two additional reminder invitations are typically mailed at 2-4 day intervals to those respondents who have not yet participated in the survey. For this study, one reminder was sent to potential respondents. To increase the number of respondents in the survey and to improve overall response rates, respondents were provided with a summary of some of the survey responses. This too was done via the Internet. Respondents were sent an email that provided them access to a web site that contained the survey findings. As with the survey itself, this was a password protected site that was accessible for a limited period (1-2 weeks). All data were then tabulated, checked for internal consistency and processed by computer. A series of computergenerated tables were produced for each of the key sample groups that showed the results of each survey question, both by the total number of respondents and by the key subgroups. 88 Detailed Methodology (cont’d) WEIGHTING Completed interviews were weighted to figures obtained from the March 2005 Current Population Survey (CPS). Harris used several demographic variables (e.g., sex, age, education, race and ethnicity and income) to generalize survey results to the population at large. In addition, Harris Interactive applied a proprietary technique to the data called "propensity weighting" that essentially balanced all the characteristics (e.g., demographic, attitudinal, and behavioral) of online respondents. It is no surprise that certain kinds of people have a greater or lesser likelihood to be online and therefore to reply to our surveys. To account for this, Harris gave each individual a “propensity weight” which corresponded to their likelihood to be online. This ensured that the sample represented the general shareholder population at large and was not skewed toward more active online users or survey takers. In addition, people who had a lesser likelihood to be online acted as a proxy for those who are not online at all. Typical propensity weights that were used included measures of activity (our online respondents do more things), knowledge (our online samples are better informed), and attitudes (our online samples are more skeptical or cynical). 89 Detailed Methodology (cont’d) WEIGHTING (CONT’D) It is also worth mentioning that Harris conducts parallel telephone and online research on a regular basis through The Harris Poll, our monthly omnibus survey. By conducting this research, Harris is able to track results to make comparisons between data collected online and by phone, closely examine the biases and most importantly, develop strategies for correcting these biases. In fact, Harris has an internal department that is entirely focused on conducting this “research on research.” EDITING AND CLEANING THE DATA The data-processing staff performed machine edits and additional cleaning for the entire data set. Our edit programs acted as a verification of the skip instructions and other data checks that were written into the online program. The edit programs listed any errors by case number, question number and type. These were then resolved by senior personnel, who inspected the original file and made appropriate corrections. Complete records were kept of all such procedures. 90 Detailed Methodology (cont’d) CALCULATION FOR BETTERNVESTING INDEX The BetterInvesting Index measured shareholders’ overall perspective in the stock market from three different vantage points or categories: 1) overall confidence in the stock market and economy, 2) personal investment behaviors and 3) attitudes about risk and the value of stocks. Within each of these vantage points, the Index was derived from component items from the BetterInvesting Voice of the American Shareholder January 2004, May 2004, November 2004, February 2005, May 2005, and October 2005 surveys. The component items are as follows: 1) Overall confidence in the stock market and economy: Q410: How much confidence do you have the U.S. economy is generally moving in the right direction? 2) Personal investment behavior Q611 a, b: Thinking about your investment portfolio, over the next six months, do you plan to increase, decrease, or make no change in your investments in (individual stocks; stock mutual funds)? Q605: Investment risk is typically defined as a greater likelihood that your portfolio may lose value but it often associated with higher returns. How would you characterize most of your investments on a scale from “not risky at all” to “very risky” 3) Attitudes towards investment risk and the value of stocks: Q602: How strongly would you agree or disagree with the following statements: It’s a good time to move money into safer, lower risk investments from higher return/higher risk investments. Most stocks are a better bargain now than they were a year ago. It’s a good time for new investors to get involved in the stock market. 91 Detailed Methodology (cont’d) CALCULATION FOR BETTERINVESTING INDEX – (cont’d) For each component item within the three overall categories, a ‘component score’ was calculated by taking the difference of the percentage of positive responses and the percentage of negative responses. For example, in October 2005, Q410: “How much confidence do you have that the United States’ economy is generally moving in the right direction?” 9% responded that they have a great deal of confidence in the direction of the economy, 78% responded that they had a fair amount or not much confidence and 13% indicated they had no confidence at all. This yielded a component score of 9% - 13% = -4.0% To calculate the BetterInvesting Shareholder Index, we then took the mean of the 7 component scores. 92 Detailed Methodology (cont’d) CALCULATION FOR BETTERINVESTING INDEX – (cont’d) The following table shows the component scores for each item used in calculating the Index for September 2003, January 2004, May 2004, November 2004, February 2005, and May 2005. Please note that since the three statements that make up Q502 were not asked in the September 2003 survey, the scores below should only be used to get a general sense of how the scores have changed on the other items that were repeated between September 2003 and November 2004. Component Scores Sept ’03 Jan ’04 May ’04 Nov ’04 Feb ’05 May ‘05 Oct ‘05 Confidence that US economy is moving in right direction 5.9 15.2 10.6 6.5 -2.5 0.5 -4.2 Increase, decrease, or make no change in individual stock investments, next 6 months 24.0 27.3 18.6 20.8 19.5 17.5 16.5 Increase, decrease, or make no change in stock mutual funds, next 6 months 21.8 25.8 19.3 17.5 23.5 15.3 13.3 How would you characterize most of your investments (1=not risky, 7=very risky) -- 7.0 -1.1 0.0 0.2 1.4 0.4 Good time to move money into safer, lower risk investments -- 3.3 -6.7 -15.5 -16.0 -23.2 -27.8 Most stocks are a better bargain now than they were a year ago -- 9.8 7.7 9.2 -0.2 7.4 1.2 Good time for new investors to get involved in the market -- 47.0 27.6 26.3 30.1 16.1 8.8 Index Score -- 19.3 10.9 9.3 7.8 5.0 1.2 Component Item 93 Detailed Methodology (cont’d) CALCULATION FOR BETTERINVESTING INDEX – (cont’d) Validating the Index In order to measure the validity of the BetterInvesting Index, an investment allocation exercise question was included in the January 2004, May 2004, February 2005, May 2005, and October 2005 surveys. The purpose of this question was to be able to link the “attitudinal” nature of the NAIC Index to observable behavior in future waves of this research. The question (Q615) asked: “If you had ($10,000/$100,000) to invest, how much would you invest in each of the following? Individual stocks Stock mutual funds Individual bonds Bond mutual funds Cash Alternative Investments This question was structured so that half of all shareholders interviewed were shown $10,000 in the question and the other half were shown $100,000. The idea was that changes in shareholder confidence, as measured by the Index, should be reflected in changes in portfolio allocation. As confidence improves, we would expect that shareholders would become growth-oriented and conversely as confidence weakens, we would expect that shareholders would allocate money towards safer investments. 94 Appendix 95 Component Scores by Gender Component Scores Question Male Female Q410 0.4 -11.4 Q511a1 18.3 13.9 Q511a2 16.5 8.5 Q505 12.7 -18.7 Q502a1 -21.4 -37.8 Q502a2 -2.3 6.8 Q502a3 12.6 3.0 36.7 -35.7 5.2 -5.1 S= BetterInvesting Index = 96 Component Scores by Age Component Scores 35 or less 36-49 50-64 65+ Less than 55 55+ Q410 -3.5 -3.8 -7.8 -2.3 -4.1 -4.4 Q511a1 12.6 24.4 14.2 13.0 19.0 13.1 Q511a2 19.6 16.8 13.8 4.1 18.1 6.5 Q505 11.6 20.6 4.0 -33.9 16.5 -22.4 Q502a1 -10.3 -26.1 -28.9 -42.8 -19.6 -39.5 Q502a2 14.0 -1.4 -0.6 -4.4 4.5 -3.4 Q502a3 14.0 10.1 7.8 4.2 10.6 6.4 S= 57.8 40.6 2.5 -62.0 45.0 -43.6 8.3 5.8 0.4 -8.9 6.4 -6.2 Question BetterInvesting Index = 97 Component Scores by Region Component Scores Question East Midwest South West Q410 -3.0 -6.0 -1.6 -7.6 Q511a1 22.0 15.4 15.2 14.1 Q511a2 9.6 9.8 14.2 19.1 Q505 9.0 -12.1 -0.7 4.7 Q502a1 -33.4 -32.5 -20.6 -28.1 Q502a2 -5.3 2.8 4.9 1.2 Q502a3 19.2 15.5 3.1 0.3 S= 18.2 -7.2 14.6 3.7 2.6 -1.0 2.1 0.5 BetterInvesting Index = 98