Investing December 1, 2017

Sponsors Must Weigh Response To Record-Breaking Equity Markets

With strong November returns, the Wilshire 5000 U.S. equity index extended an unprecedented run of consecutive monthly gains.

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The Wilshire 5000 Total Market Index, billed by its creators as “a pure and complete measure of the U.S. stock market,” gained an impressive 3.04% in November, closing the month at 27,356.70 for yet another record high.

According to data provided by Wilshire Associates, without counting dividends reinvested, the index had an estimated actual market value gain of $800 billion in November. Various sources are suggested for this strong monthly growth for U.S. stocks.

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“Continued optimism about tax cuts coupled with positive outlooks on interest rates as well as the Fed and Fed chairman nominee powered the market,” suggests Robert Waid, managing director, Wilshire Associates.

With the November returns, the Wilshire index extended an unprecedented run of consecutive monthly gains, now to 13. Simply put, the growth has been remarkably steady: “The Wilshire 5000 set six more all-time highs in November,” Waid notes. “This marks 55 record high closes in 2017, and, as of November, the index has now posted positive returns for 20 of the past 21 months.”

Wilshire’s reporting shows November was the third time during those 21 months, and the first time since December 2016, that all tracked equity indexes and sectors were positive for the month. Notably, the large-cap portion of the index continued to outperform the small-cap side, marking its ninth month of outperformance over the past 11 months, with a gain of 3.06% vs. 2.86%, respectively. This resulted in a very strong year-to-date return of 20.40% for the Wilshire U.S. Large-Cap Index vs. a still-impressive 13.54% for the Wilshire U.S. Small-Cap Index.

For retirement plan sponsors and participants, perhaps less important than this 686-basis point performance spread for the preceding year is the associated shift in portfolio weights that come along with varied asset class performance across different exposures in the portfolio—as was measured during November with large-cap vs. small-cap stocks. Just like market lows, market highs should reinforce the importance of regular risk reviews and portfolio rebalancing.

Data and Research December 1, 2017

Recession Has Prompted Millennials to Be Financially Conservative

They are willing to cut back on going out or taking vacations in order to save as much as 50% of their paychecks.

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Having come of age when the Great Recession of 2008 broke, Millennials are taking a conservative and proactive approach to their finances, according to the latest Merrill Edge Report. Asked what they expect to rely on in 20 years, 66% said their savings account, outpacing their significant other (57%) and friends (56%).

In fact, 38% said they would be willing to save more than 50% of their paycheck if it could help them have more money in the long run. Asked what they expect to rely on for financial security, 71% of Millennials said their 401(k) account. By comparison, 54% of Baby Boomers said a pension and 50%, Social Security.

Asked what they would be willing to do to have more money in the long run, 54% of Millennials said cut back on going out, 42% said skip vacation for a year, 36% said delay buying a house, and 33% said postpone getting married or having children.

Eighty-five percent of Millennials said they want to play it safe with their day-to-day investments—more so than with other aspects of their life, such as their career (80%), romantic life (73%) and travel (55%). By comparison, 46% of Millennials’ parents characterize themselves as financially conservative, while 35% of their grandparents do.

Millennials say the Great Recession has colored their view of the world, including regarding buying real estate (78%), pursuing education (58%) and having children (53%). Eighty percent are worried they will experience another recession in their lifetime, and 30% think it will occur within the next five years.

Millennials are also stepping up to the plate when it comes to their finances, with 64% saying they feel responsible about making future financial decisions. By comparison, 54% of other generations feel this way. Another 64% said they consider the future, compared with 52% of other generations, and 54% believe they will be successful in making financial decisions, compared with 48% of other generations.

“As we observe how Americans look at their financial future, younger generations continue to rewrite the rules for the rest of us,” says Aron Levine, head of Merrill Edge. “We’re excited to see this group take financial matters into their own hands by becoming increasingly self-motivated and financially savvy. By being more conservative with their money now, they’re looking to seize the financial future they desire in the long run.”

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