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Legg Mason Survey Finds Investor Expectations For Income Disconnected From Market Realities, Creating Income Gap

NEW YORK, March 26, 2013 /PRNewswire/ -- According to a new survey of 500 affluent U.S. investors by Legg Mason, almost three-quarters (74%) said "now is a good time to be invested in equities" with 52% adding that they are more inclined to use equities to generate investment income.

Combining this optimism with the fact that fully 66% reported that income investing was a "top priority," 40% of respondents reported they were invested in equity income mutual funds, and 25% of those who use income generating investments said they planned to increase their allocation to equity income funds over the next 12 months.

Just 9% said they intend to decrease their equity exposure over the next 12 months; and even less (5%) plan to reduce their fixed income positions. Interestingly, 60% also believed it was a good time to be invested in real estate for income, and 15% intended to increase their allocation to this asset class.

Income Expectation Disconnect Creates Income Divide

Though they place an increasingly higher priority on income investing, almost half (48%) said they were generating less income than they had hoped from their portfolios. Perhaps this is less a function of the market and more a result of their expectations:

On average U.S. investors who use income generating products said their desired return was 8.5% and they are receiving on average 5.9%: a difference of 2.6%.

"Income-oriented investors need to consider strategies that are focused on outcomes.  Start by establishing a realistic rate of return based on long-term goals or the need to satisfy liabilities with income," said Matthew Schiffman, managing director and head of global marketing at Legg Mason Global Asset Management.  "Our survey is telling us that income-oriented investors in the U.S. are coming up well short of their goals – almost 3% short – and that number could be significant especially for retired investors who need to live on the income their portfolios generate."

Mr. Schiffman continued: "Investors have to recognize the trade-off: if they want higher income, they need to increase their exposure to risk in both fixed income and equities; if they prefer a low-risk approach to investing, they may have to reduce their income goals and expectations."

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