Steve Utkus oversees the Vanguard Center for Retirement Research, which studies many aspects of retirement in America—from how individuals start saving and investing in the early part of their careers, to how they prepare for actual retirement, to how they spend down their savings once they’re retired.
When the stock market sells off, as it did in late July and early August, there is an inevitable surge in commentary on the riskiness of U.S. retirement accounts. The main worry is that retirement investors are taking on too much risk and that retirement assets should be invested in “safer” securities or programs.
From my perspective, many such criticisms seem unduly focused on the short run.
I read the headlines, same as you. Investors are panicking. During the drive in to work today, I listened to a radio business show. A correspondent talked about the flood of selling and the deep sense of fear in financial markets. Another expert spoke about investors cashing out and moving assets to the sidelines.
Yes, it is true that in volatile markets, there is more trading. And what is true in the markets is also true at Vanguard. In our 401(k) business, for example, the number of participants making a change in their portfolios, and the dollars they were moving, jumped five- or six-fold on the worst days for stocks. A similar pattern emerges in our retail business. These statistics are the source for headlines about shifting investor sentiment.
This morning I saw on a website that the spot price of gold had soared to $1,600 an ounce, up over 30% in the past year. What can we as investors say conclusively say about gold? Two things, I think: First, now seems exactly the wrong time to be thinking about gold as an inflation hedge. Second, now is probably not a good time to be buying gold jewelry, if such is your passion.
Among “gold bugs,” the standard argument for buying gold is the risk of financial Armageddon: If the Federal Reserve mismanages the money supply, the United States will be engulfed by hyperinflation and the dollar will be debased. Only real assets like gold will preserve their purchasing power.
If you haven’t saved enough for retirement, one possible solution is working longer. But a new report by the Employee Benefit Research Institute* paints a somewhat bleak view of the benefit of doing so. The study suggests that if you haven’t saved enough in your working years, even working into your 80s won’t help.
It’s another “retirement blues” story—even working longer, a widely-touted strategy, just won’t help.
According to a recent survey, more than 70% of participants in 401(k) retirement plans think they pay no fees on their accounts. Less than a quarter got the answer right, acknowledging that they do, in fact, pay fees.
It’s enough to drive true-blue Vanguard investors to despair. But before we give up entirely on our fellow investors, I’d like to suggest that there are some important issues here at play.
