Investing September 22, 2015

Schwab Finds Equities Dominate SDBAs in Retirement Plans

In the second quarter, participant account balances in the Schwab Personal Choice Retirement Account were down 0.07% from the first quarter, but up 3.8% from June 2014.
Reported by

According to Charles Schwab’s institutional SDBA Indicators Report, a benchmark of retirement plan participant investment activity within self-directed brokerage accounts (SDBAs) using data from participants in the Schwab Personal Choice Retirement Account (PCRA), plan participants invested 47% of new assets into equities in the second quarter of 2015.

This compares with just 30% in the prior quarter. Flows into mutual funds dropped to approximately 10% in the second quarter, down from 38% in the first three months of the year.

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SDBAs are brokerage accounts within retirement plans that participants can use to invest in stocks, bonds, exchange-traded funds, mutual funds and other securities that are not part of their plan’s core investment offerings. The average balance in PCRA was $206,564 at the end of the second quarter, representing growth of 3.8% from June 30, 2014. Participants age 50 and older remain the largest age demographic in the PCRA at 53.3%, while the average age is 49.

According to the Schwab data, mutual funds continued to be the top asset allocation at 39% of all portfolios, a decrease of 2% from last year. Allocations to equities remained the same at 28% and cash (17%), exchange-traded funds (14%) and fixed income (2%) rounded out participants’ portfolios.

NEXT: Specific sector holdings within SDBAs

Participants averaged just fewer than six trades during the second quarter, which is consistent with the low number of quarterly trades executed historically.

The data also reveals specific sector holdings within each investment category:

  • Among exchange-traded funds, investors allocated the most dollars to U.S. Equity (45%) and International Equity funds (17%). Commodity funds (4%) and International Fixed Income (1%) represented the smallest allocations.
  • With regard to mutual funds, Large Cap funds represented 30% of all allocations, followed by Taxable Bond (19%), International (16%), Hybrid (14%) and Small Cap funds (13%).
  • Apple (AAPL) was the top overall holding, growing to 12.14% of all portfolios. As a result, Information Technology (28%) was the largest sector holding for individual securities, followed by Financials (14%) and Consumer Discretionary (12%). Utilities and Telecommunication Services represented the smallest allocation, each accounting for just 2% of participants’ portfolios.
The second quarter 2015 report, as well as prior reports, can be found at www.schwab.com/sdbaindicators.
Data and Research September 22, 2015

Gen Xers and Boomers Still Feeling Effects of Market Crash

The downturn has created “post-crash skeptics.”
Reported by

Sixty-seven percent of Generation X and Baby Boomers say they still feel the impact of the market crash of 2008 in how they live, work, save and spend, according to Allianz Life Insurance Company of North America. Those who experienced six or more major effects of the crash are what Allianz is calling “post-crash skeptics,” and among this group, 93% say the crash still haunts them today. In addition, 93% of these skeptics think retirement is now a “romantic fantasy of the past,” compared with 84% of total respondents.

The survey asked respondents 13 questions about the market crash: whether their home or 401(k) went down in value, whether they or a family member lost a job and whether their savings and/or retirement were affected, among others. Twenty percent experienced six or more of these events and are the post-crash skeptics. Eighty-three percent of these skeptics have become far more cautious in their approach to retirement savings. Forty-three percent of the skeptics say they have moved to more conservative investing, compared with 22% of the overall respondents.

Seventy-seven of the skeptics have lost confidence in financial institutions, compared with 38% of the total respondents, and 67% say their now view the market as risky, compared with 32% of the total respondents.

Half the skeptics have taken on more debt since the crash, compared with 23% of total respondents, and 41% said they or a partner had lost a job, compared with 15% of total respondents. Forty-one percent of the skeptics said they have stopped saving for retirement since the crash, more than three times overall respondents. Fifty-one percent of the skeptics do not believe they will  be able to live the lifestyle they would like in retirement, compared with 22% of total respondents.

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The survey “yielded some compelling differences in the way Gen Xers and Baby Boomers view their finances, but the emergence of post-crash skeptics from both generations experiencing the same sense of skepticism and lower confidence about their financial future was eye-opening,” says Katie Libbe, vice president of consumer insights at Allianz. “It’s important for the financial services industry to recognize this group and consider strategies for helping them move past the barriers and biases resulting from 2008, prompting them to take a more active role in financial planning. If these post-crash skeptics have been sitting on the sidelines since 2008, it may be time for them to get more engaged with their finances.”

Larson Research + Strategy conducted the survey for Allianz in November among 2,000 adults with a minimum household income of $30,000.

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