401(k) New Year’s Resolutions: Improve Fixed Income Allocations, Build a Stronger Core and Use Target Date Funds Effectively
January 15 2014 - 1:30PM
Business Wire
SSgA Study Outlines Steps for Plan Sponsors to Help Participants
Overcome Conservatism and Keep Investments on Track
Despite a bullish outlook on the market, plan participants are
becoming increasingly conservative with a preference for fixed
income without a solid understanding of its role in their
portfolio, according to the most recent survey of US workplace
retirement plan participants released today by State Street Global
Advisors (SSgA), the asset management business of State Street
Corporation (NYSE: STT).
Five years after the global financial crisis, survey respondents
are positive about the market and investing. Almost eight in 10
respondents who invested during the market downturn said they are
contributing as much as or more now than they did five years ago
and responses to open-ended questions suggest that their
experiences taught them an important lesson about the cyclical
nature of the markets. Their responses are especially noteworthy
given generally weak wage growth and increased job uncertainty.
Other findings include:
- Seventy-six percent say their DC plan
is the same or in better shape than five years ago
- Seventy-eight percent think that in
five years the market will be the same or in better shape than it
is today
- Seventy-nine percent have maintained or
increased their contribution levels since the crisis
Despite this confidence, the survey uncovered indications of a
shift toward more conservative investment behavior. Although
investors traditionally invest more aggressively as their optimism
increases, 49 percent are currently investing more conservatively
than they did five years ago and only seven percent of DC investors
indicate that they are taking a more aggressive approach.
“Plan sponsors need to recognize participants’ new conservative
mindset and design a plan menu that helps them invest to meet their
financial goals,” said Fredrik Axsater, senior managing director
and global head of defined contribution, SSgA. “Participants are
afraid of losing their retirement savings and are shying away from
making more aggressive allocations. This is particularly concerning
for younger investors who may not understand how a conservative
approach can limit the growth needed to fund retirement.”
Participants are implementing their more-conservative investment
approach by holding larger percentages in fixed income, but many
responses indicate fundamental misunderstanding about bonds and
their role in a retirement portfolio. More than a third of
participants indicated that bonds help minimize the impact of
inflation, when in fact bond returns are highly vulnerable to
inflation increases. Additionally, many respondents did not select
features of bonds that describe their fundamental roles in
retirement portfolios. Roughly half did not choose “lower risk than
stocks,” six in 10 didn’t choose “better portfolio
diversification,” and seven in 10 didn’t choose “reduced
volatility.”
In an earlier survey of US workplace retirement plan
participants released by SSgA in January 2013, respondents
indicated that they want automaticity and guidance when making
decisions about their investments and their overall retirement
readiness. The survey also called out a younger cohort of investors
25 and under, “Generation DC,” that reported an ongoing desire to
learn more about retirement readiness.
“Our ongoing research into the attitudes and decisions made by
plan participants continues to tell us that automaticity, plan
design and engagement is the key to overcoming the impending
retirement crisis,” continued Axsater. “It is critical to
understand the mindset of participants in order to build the right
products that help them fund their retirement. Notably, fixed
income allocations within DC core funds and target date funds need
to become more consistent with employee needs and preferences. A
strong participant engagement program with action-oriented, clear
communication can complement automaticity and strong plan
design.”
Based on these insights from investors, SSgA recommends the plan
sponsors:
- Take advantage of market optimism and
encourage participants to continue saving more
- Assess portfolios and identify
participants who have allocations out of line with the
age-appropriate allocations in target date funds
- Build a stronger core offering and
ensure that the plan menu is simplified and easy to understand
- Develop communications campaigns
focused on bonds that help remedy misunderstandings about
conservative options in their portfolios
- Consider target date funds that help
participants transition from their accumulated savings to a more
secure retirement income
For more information on the survey or to subscribe to “The
Participant” magazine, see the full brochure and more details on
the survey, please click here.
About State Street Global Advisors
State Street Global Advisors (SSgA) is a global leader in asset
management. The firm is relied on by sophisticated investors
worldwide for its disciplined investment process, powerful global
investment platform and access to every major asset class,
capitalization range and style. SSgA is the asset management
business of State Street Corporation, one of the world's leading
providers of financial services to institutional investors
CORP-0932
The information provided does not constitute investment advice
and it should not be relied on as such. It should not be considered
a solicitation to buy or an offer to sell a security. It does not
take into account any investor's particular investment objectives,
strategies, tax status or investment horizon. You should consult
your tax and financial advisor. All material has been obtained from
sources believed to be reliable. There is no representation or
warranty as to the accuracy of the information and State Street
shall have no liability for decisions based on such
information.
Investing involves risk including the risk of loss of
principal.
State Street CorporationAnne McNally,
+1-617-664-8576www.ssga.com
State Street (NYSE:STT)
Historical Stock Chart
From Jun 2024 to Jul 2024
State Street (NYSE:STT)
Historical Stock Chart
From Jul 2023 to Jul 2024