Consumers are showing more interest than ever in saving money. For the most part, they are funneling money into investments that are perceived as safe, especially after the financial debacle of the past few years. Brokerage houses would like to sell more of a specific kind of financial instrument to investors: options. The results of a new survey show that companies will need to significantly increase their marketing efforts to increase consumer awareness of this type of investment.
A recent survey by Kiplinger Magazine found that few consumers use options as an investment vehicle. In addition, few consumers understand what options mean. Generally, options are a contract “between two parties concerning the buying or selling of an asset at a reference price during a specified time frame.”
To determine why consumers avoid options, TD Ameritrade hired Market Probe Financial Services Practice to conduct an in-depth study on the topic. Here are the findings regarding consumer opinions on options:
- Too risky 34%
- No need for them 25%
- Do not understand them 23%
Fewer buy and hold investors (12%) say that options are important for diversification than active investors (38%).
To counter these beliefs, TD Ameritrade analysts point out that more investors could profitably use options to manage portfolio risk. This is especially true of investors who use a “protective put” to hedge against downside risk. Currently, far more active investors use options than buy and hold investors. But analysts point out that buy and hold investors can boost short and long-term investment goals by using options. Options trading is not recommended for all investors. For example, the TD Ameritrade study surveyed only consumers with at least $5,000 of funds available to invest. Experts also suggest that consumers who want to improve earnings by using options should first take a class or seminar on how these financial instruments work.
As investment houses and brokers seek to differentiate themselves in the improving economy, they’ll likely be marketing a variety of investment opportunities and educational programs on topics like options trading.[Source: When It Comes to Options, Few Investors Understand Their Options. TD Ameritrade. 13 Jan. 2011. Web. 24 Jan. 2011;