Benefits July 21, 2014

Many Millennials Prefer Cash as Long-Term Investment

July 21, 2014 (PLANSPONSOR.com) – American adults under age 30 favor cash and other lower-risk assets, even as the basis of a long-term investment strategy, according to new research.
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An analysis of Bankrate.com’s Financial Security Index shows that 39% of young working adults in the U.S. say cash is their preferred way to invest money they won’t need for at least 10 years. That’s three times the number of people in the age group who picked the stock market, Bankrate.com says, despite the fact that the S&P 500 Index has posted strong gains over the past year. Most cash investment yields remain below 1%, the Bankrate.com report shows, implying Millennials who rely on cash investments could fall short on retirement income down the line.

The findings match other recent research suggesting Millennial employees and their Baby Boomer counterparts share a lot of common ground when it comes to keeping the risk level of their investments low (see “Millennial Investing Balancing Risk and Returns”). But whereas lower risk levels may be essential for Baby Boomers to protect accumulated wealth, younger workers could be playing it too safe.

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“The preference for cash and aversion to the stock market among young adults is very troubling considering this age group has the biggest retirement savings burden,” says Greg McBride, Bankrate.com’s chief financial analyst. “They won’t get [to retirement readiness] without being willing to assume a little short-term price risk in their long-term money.”

Overall, one in four Americans prefers cash investments for money that will not be needed for at least 10 years. Cash slightly edged out real estate (23%) for the top spot, while stocks came in third with 19% of the vote. Fourteen percent of Americans say they would invest in gold and other precious metals, and just five percent say they would choose bonds as a long-term investment.

The Financial Security Index also shows that four of the five components of financial security assessed by Bankrate.com—job security, comfort level with debt, net worth and overall financial situation—have shown improvement compared to last year.

Savings continues to be a sore spot for most Americans, though. The Bankrate.com index shows those feeling “less comfortable” with their savings outnumber those feeling “more comfortable” by a two-to-one margin. While men believe that they have seen improvement in their financial security over the past year, women feel their financial security has deteriorated.

The Bankerate.com Financial Security Index can be viewed in full here.

— Matthew Miselis

Benefits July 21, 2014

Natixis Funds Investor Behavior Research

July 21, 2014 (PLANSPONSOR.com) – Natixis Global Asset Management announced plans to fund a research project focused on investor behavior and personal financial benchmarking, based at the Massachusetts Institute of Technology (MIT).
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The three-year, $1 million research project will be led by Andrew W. Lo, designated as the Charles E. and Susan T. Harris Professor at the MIT Sloan School of Management. He is also director of the Laboratory for Financial Engineering (LFE), where the research effort will be conducted.

Natixis says it will also provide Lo and the LFE researchers with access to data from its global Investor Insights surveys of individuals, financial advisers and institutions, now in the fifth year and containing responses to more than 500 survey questions by more than 30,000 participants.

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“The research we’re funding at MIT will lay the foundation necessary to revolutionize traditional investment strategies designed to help investors build better portfolios and increase their chances of long-term success,” says John Hailer, chief executive officer of Natixis Global Asset Management in the Americas and Asia, based in Boston. “It’s time to introduce a new paradigm for investing.”

This new research program will begin by studying the industry practice of using an index as a benchmark and developing a more modern approach to benchmarking based on an individual’s unique circumstances, as well as current market dynamics. As part of this effort, LFE researchers will be developing algorithms to mimic irrational but common investor behavior (e.g., buying high, selling low, and moving to cash for extended periods of time) in an attempt to quantify the systematic mistakes made by investors. This will lead to the third phase of the research involving the creation of new customizable benchmarks and indexes that adapt to changing market conditions and behavioral challenges.

“The Holy Grail of developing automated, customized processes for making better investment decisions is not unique to our times or the financial industry,” said Lo, who is based in Cambridge, Massachusetts. “But what is unique is the confluence of breakthroughs in financial technology, computer technology and institutional infrastructure that makes automated personalized investment management a practical possibility.”

For more information on Natixis, visit http://ngam.natixis.com. For more information on the MIT Sloan School of Management, visit http://mitsloan.mit.edu.

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