Investing October 17, 2017

Women Have Investment Approach That Aligns With Retirement Savings

When asked about the investment approach that best aligns with their retirement savings objectives, the top choice overall for 30% of women was a mutual fund with a track record of outpacing the stock market over the long term.

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Women do not fit the negative stereotypes that have been attributed to them regarding finances, a poll finds.

According to a survey of 1,200 investors conducted by Capital Group, 81% of women investors say they have personally experienced negative stereotypes regarding finances, including their investing acumen, income, role in making financial decisions and appetite for risk.

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“American women are a powerful economic force with $11 trillion of assets,” says Heather Lord, senior vice president and head of strategy and innovation at Capital Group. “Women are a complex and varied group of investors, and they have a clear vision for their investing goals. They want enough money to retire and to take care of children or aging family members. They want investments that outpace the market over time and show resilience in market downturns. And more than men, women want to invest in companies that are not only financially successful but also deliver economic and social benefits.”

More than half (52%) of women investors say they are always or usually confident they have the knowledge to make good financial and investment decisions. Half of Baby Boomer (50%) and Generation X (48%) women investors say their top priority outcome is to beat the stock market over time, while for 51% of Millennial women it’s to grow their investments in line with the market.

One of the most common stereotypes women investors face is low appetite for appropriate investment risk, but their investment preferences suggest otherwise. When asked about the investment approach that best aligns with their retirement savings objectives, only one out of 10 women (11%) chose the most conservative option: bank CDs and high-quality bonds with little or no money invested in the stock market.

In contrast, the top choice overall for about one in three women (30%) and men (33%) was a mutual fund with a track record of outpacing the stock market over the long term. However, women investors do not ignore the concern for market downturns. Nearly one in four women (24%) investors surveyed voiced their highest preference for mutual funds that do better than the stock market during downturns, compared to 19% of men, indicating a somewhat higher interest in downside protection on the part of women.

Of the generations surveyed, Millennials are most confident about investing and started earliest: 63% of Millennial women say they began to care about money and investing in their 20s; however, only 28% of Gen Xers and 16% of Baby Boomers say they focused on financial decisions and investments in their 20s. Millennial women across all races, as well as all three generations of African-American and Hispanic women, are much more likely than other groups to have concerns about paying for their children’s education and taking care of aging parents. In addition, 57% of Millennial women are concerned about having enough money to retire with peace of mind.

Generation X is the most anxious about retirement by far, having weathered the collapse of the dot-com bubble in the early 2000s and the 2008 financial meltdown, as well as sluggish wage growth during their formative adult years. Two-thirds of Gen X women (66%) say that not having enough money to retire keeps them up at night. Conversely, Baby Boomer women are the least worried about money in retirement (51%) and three in 10 (31%) say that nothing related to finances keeps them up at night. Boomer women are also most focused on reducing their losses during periods of market downturns, compared to Millennials and Gen Xers, given the need to preserve capital and generate income when they are closer to retirement age.

More information about the survey is here.

Research October 17, 2017

Research Shows Employers Can Increase Auto Enrollment Default Savings Rates

Voya Financial says plan sponsors should not be intimidated about raising default savings rates. 

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A research study from Voya Financial revealed a high automatic enrollment default savings rate does not deter participant enrollment, contrary to most employers’ outlooks.

The study, “How Do Consumers Respond When Default Options Push the Envelope?” was conducted using 10,000 plan participants who used their employer’s plan enrollment website. The study suggests that plan sponsors can triple the often-used default rate of 3% without decreasing plan participation.

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While Voya researchers consider the automatic enrollment an “effective plan design tool for overcoming behavioral barriers to saving,” the researchers believe the standard 3% default rate for enrollees is far too low to get participants to an effective retirement outcome.

Many employers are reluctant to suggest higher default contribution rates due to a concern that their workers might blindly accept what is not in their best interest, or that they might get intimidated and opt out of the plan altogether,” says Dr. Shlomo Benartzi, senior academic advisor to the Voya Behavioral Finance Institute for Innovation. However, he continues, “No one had researched these concerns using a scientific approach. Would plan participants accept a 7%, 8% or 9% default savings rate? Can we push it even higher into double digits? Through this study, our team found pre-conceived fears were largely unwarranted.”

“By testing different retirement plan saving rates that are shown online to individuals, we have evidence to support that employers should not worry about ‘pushing the envelope’ and suggesting higher default levels,” says Richard Mason, head of behavioral finance at Voya. “Rather, they should be more concerned about rates that are too low to meet future retirement needs.”

More information on the study can be found here.

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