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About Trends in Savings and Wealth
Decisions about how much to save and how to invest those savings are among the most crucial financial decisions that most people will make in their lifetime. These decisions will determine material well being and personal fulfillment to a surprising degree, including whether one is able to purchase a home for one’s family, pay for the education of a child, provide for a comfortable retirement, launch a new business, and perhaps transfer financial comfort to one’s children. Major changes are taking place these days in our understanding of the saving process. We are rapidly gaining new insights into human motivations to save, including common psychological hurdles that sometimes may need to be overcome, like procrastination and inappropriate discounting of future consumption. We are also gaining an understanding both of how individuals perceive and respond to risks—including important instances in which they have difficulties estimating such risks (and the correlations among risks) accurately. Limitations in understandings about markets (including the complexities of financial markets) may impede the ability of individuals to make wise decisions. All the while, financial engineering continues to evolve and is making more investment strategies possible at the same time that transactions costs are being lowered. These developments may increase the array of choices facing individuals, but also simplify decision making.
These developments also make it all the more important to expand the process of education of individuals on the choices they face and their consequences, if we are to empower savers to make choices that reflect their long-term goals.
The consequence of these developments is that this is an exciting time to be researching the saving/investment process. This is exactly where the new online research site, Trends in Savings and Wealth (TS&W), aims to makes its contribution—by bringing together behavioral economics, the economics of information, the study of regulation, and traditional microeconomics and finance—to try to provide thought-provoking new ideas and solutions out of this blend.
For the past four years, it has been my privilege to serve as an outside adviser to Pioneer Investments, in its attempt to understand the savings/investment process so that it can provide products that are better suited to the needs of its customers. Pioneer, of course, has not been motivated just by public service, but by a belief that if it can devise such products, it will be more successful. But Pioneer also believes that a wider understanding of the investment/savings process will create an environment in which innovative products responding to these needs are more likely to succeed. That is why it has decided to sponsor this new research site, hoping to elicit contributions from a wide variety of disciplines whose studies enhance our understanding of the savings/investment process.
Over time, I look forward to a series of thought-provoking articles that will report fresh research on our understanding of motivations for saving, the best ways to help people achieve their saving goals, and the best financial strategies for maximizing saver long term well-being. I am especially excited about a format that is accessible to academics and financial practitioners alike. I believe that dialogue between these two normally separate groups will be important for the advancement of both theory and practical saving tools. I extend to TS&W my best wishes for every future success.
Trends in Savings and Wealth represents for Pioneer Investments a further step in the continuous effort towards best practice.
The burst of the equity bubble in 2000 and the scandals that followed have shown that informational asymmetries and short-sightedness can be highly damaging not only to clients but also to the reputation and to the longer term interests of the financial industry.
Opinion-leaders, regulators, investors are asking for more accountability, transparency and risk control. We are proud to be one of the very few European Asset Managers with a significant and statutorily defined presence in the Audit Committee. We are also proud of having set up a clear investment process, that has recently received a high rating from Fitch, as well as powerful risk management tools. We believe that the analysis and evaluation of market trends should be in the interest of our clients and in our own longer term interest. The analysis should also be characterized by objectivity, originality and independence.
Trends in Savings and Wealth is sponsored by Pioneer Investments. According to its editorial policy, it will post contributions either from well-known academics or from investment professionals, be they from Pioneer Investments or not, to be validated by external referees. We hope we will receive many useful papers. Our warmest thanks to all the academics, the professionals and to the PGAM Economic Research Department who have allowed this project to materialize.
It is our hope and our commitment that the venture we are inaugurating will be long lived and successful.
In a fast-changing world, being on the frontiers of research has become a must.
For Pioneer Investments this is also a natural evolution, since a research-based investment process has always been one of our core characteristics. Aiming at the cutting edge is part of our “DNA”.
With Trends in Savings and Wealth we have chosen to share with our clients and all the interested parties the ideas we are developing with the help of academics from both sides of the Atlantic and of open-minded investment professionals.
The Asset Management industry is structurally innovative due to a combination of changing needs, a constant broadening of the environment and to technological and product development. Clients’ investment horizons are becoming longer for the overall market, due to the increased need for life-cycle investing. Every year market appreciation and new saving flows feed into the expansion of assets under management. New areas of securitization and economic growth continually broaden the boundaries of the industry, while financial innovations produce new instruments and solutions. Change cannot be mastered without analysis and perception.
Furthermore, information overloads may lead to sub-optimal choices, especially in very dynamic environments. As service providers we must seek positive sum games that benefit the clients, while enhancing the ability of the industry to provide useful, straightforward and efficient solutions.
Pioneer Investments has a long-standing tradition of research and of strategic thinking that I am committed to preserve and develop. For us going public with Trends in Savings and Wealth represents both a new milestone and a new responsibility.
Talk about “thought leadership” has become trendy in the world of asset management. True progress in knowledge and in understanding its practical implications represents however a very difficult task and requires relevant long- term efforts with no guarantee of effective results. Moreover shortcuts can be misleading. This is why, with Trends in Savings and Wealth, we are looking at the medium term with very broad angles of analysis.
What are our desired achievements for the next five years?
We would like to support tangible progress in the area of “household finance” and portfolio optimization and also become a recognized and lively forum, able to bridge academic research and practitioners’ experience.
There are great past examples of fruitful interchange between business and general research. Should we achieve only a fraction of a percentage of what the Bell Labs did with AT&T or the Donegani Institute with Montecatini we would be more than happy.
The Italian Banks have a tradition research units, a refuge for independent minds in the thirties and early forties and an example of forward-looking thinking in the following decades.
As times change so can the instruments used. We realized the potential for developing basic research in conjunction with the World-Wide-Web. Thus we chose the formula of a site posting working papers, most of which based on the analysis of original datasets.
Besides empirical analysis we would like to give opportunities for “lateral thinking” and counter-intuitive findings. In Edward De Bono’s perspective1 , it is too often forgotten that creativity is the best ingredient for growth.
November, 2006
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