Are Americans any better at investing for retirement than they were five years ago?

Frankly, I doubt it. I have been writing for HumbleDollar blog for nearly five years. Following is the first article I wrote. Do you think anything much has changed.? Do you think all the government intervention and laws have made much difference?

Choosing Badly

Richard Quinn  |  Apr 24, 2018

TIME VALUE OF MONEY, asset class, diversification, dollar-cost averaging: This is the language of investment professionals. But it isn’t the language of everyday Americans, including those saving for retirement in their employer’s 401(k) plan.

Trust me, I know. During my nearly 30 years overseeing 401(k) plans, including providing financial education to participants, it became clear to me that using such plans as intended wasn’t easy for most people.

For diversification, employees would often invest in several different mutual funds all focused on a similar collection of U.S. stocks—with no thought of adding bonds or foreign shares. In many cases, workers couldn’t be dissuaded from putting all their money in their employer’s stock. When target-date fundswere added to a plan’s menu of investment options, many participants bought them as one of several investments, thereby negating the intended purpose.

During the 2008-09 financial crisis, employees often panicked, even if retirement was decades away. Needless to say, this locked in losses and meant they missed out on the subsequent recovery. Even worse, some workers were turned off investing in stocks and instead retreated to bond funds and other-fixed income options, in the process likely making their retirement-income goal impossible to achieve.

Participants consistently displayed a tendency to be ultra-conservative or dangerously risky with their investments. In either case, they put their retirement in jeopardy. It was rare that employees adjusted their investment mix as retirement approached. Many focused on their retirement date as if, on that date, they would use all the money in their account, thereby missing the vital point of allocating their investments to maximize an income stream over what could be 20 years or more. All these missteps were common, despite extensive and ongoing efforts to educate plan participants.

The reality: Workers can be overwhelmed by the choices they’re required to make—and by the consequences of making wrong choices. This is often compounded by employers adding too many investment options, which leads to indecision or throwing a dart at several funds with nice sounding names. One plan I reviewed for a friend offered 42 different mutual funds. That friend, not understanding the differences among the funds, chose none and instead defaulted to a fixed-income fund. Result? He retired with $45,000 in his account.

For most Americans, 401(k) plans are the most important retirement savings vehicle available to them, especially so when there’s an employer match. And yet these plans won’t provide a secure retirement if used incorrectly. Getting workers to save is the first step. Teaching them to invest is the second. We have a long way to go.



  1. I don’t think Americans are any better at investing. However, I believe that investing is easier and cheaper than 10 years ago. Back in the day, you had to take time off from work to set up a meeting with a broker. Often his advice was to buy stocks that gave him the highest fees. Today, you can buy everything online with little or no fees. I am lucky that I do have a local broker who is available to help me and more importantly, my wife, with our online accounts.

    My advice to those who do not know what to do is to invest as much as you can and to follow Warren Buffett advice. Invest in an unmanaged S&P 500 index fund . Only 20% of the active fund managers can beat the stock market indexes with their picks in any given year. He proved it with a 10 year bet from 2008-2017 in which his fund earned 7% while the hedge funds earned only 2.2%. (The money went to charity).

    Then take the long view. This is money for years from now, even decades, not next fall.


  2. Most Americans have little to no experience in investing. Therefore, they are fearful of market downturns and run for the exits when the market dips. This is true of their choices in retirement plans as well as any outside investing they may be in. Let the market slide and they will go to a stable value fund. They don’t know what a target date fund is and so often just add it on in addition to several others. The 401k plans that my son and daughter in law have asked me about have cumbersome named funds that have to be sorted through to know whether they are large cap, small cap or some hybrid. A slick brochure always comes with the signup sheet and purports to give information but reads as Greek to most people who have no experience. Investing is as much feeling as knowing since losses hurt more than gains and interest is easily understood but long-term stock appreciation isn’t as easily understood since it goes up and down over the years. This is just the tip of the iceberg when looking at the problems of folks who deal with their own investment portfolio. So no, people don’t invest any better today than they did five years ago.


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