For Stock Investing, Older Americans Are Thinking Young
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What is the main topic discussed in this episode?
Here's your Money Briefing for Monday, July 10th. I'm J.R. Whalen for The Wall Street Journal. Financial planners often tout the importance of diversifying your retirement account. In a lot of cases, a blend of stocks and bonds. But many older Americans are shunning that advice and investing heavily in stocks.
How common is heavy stock exposure among Americans aged 55 and older?
Some people are still working, and maybe they don't have a retirement date in sight. People who are 55, some of those people maybe are going to work for another 10 or 15 years, or they don't really know when they're going to retire, but they feel they can afford to take the risk.
We'll talk with our retirement reporter, Ann Turgason, about the pros and cons of investing heavily in stocks. That's after the break.
Many older Americans have a large portion of their retirement savings in stocks. WSJ reporter Anne Turgason joins us to explain why financial planners think that could be a risky move.
What do financial planners traditionally recommend for retirement asset allocation?
So, Anne, how do financial planners typically recommend that people allocate their retirement portfolio?
Well, you know, the specific allocation recommendation is going to vary by individual, but typically what you see is for people who are in retirement, approaching retirement, is a recommendation maybe to have about 60% in stocks and 40% in bonds. That's been the sort of traditional favorite allocation.
All right, so that's the recommendation, but what's the reality? How much are older Americans actually investing in stocks?
So some data from Vanguard shows that 401k investors who manage their own money, as opposed to relying on some kind of financial advisory service to manage money for them, but these do-it-yourself investors over age 55, a large proportion of them, nearly half, held about 70% or more of their portfolio in stocks, which is a pretty aggressive allocation compared to the 60-40 traditional recommendation.
Now, are these new retirees we're talking about or baby boomers who might have a larger portfolio to work with?
These are people who are 55 or older. So that can be anywhere from Gen X to baby boom to older. It's a very large swath of people.
Why is holding 70%+ in stocks later in life considered risky?
Some of them have large portfolios and some of them don't.
Why is having a higher exposure to stocks later in life risky?
So it's risky because if you are relying on that money, in other words, like retirement is coming soon or you're already in retirement and you need to withdraw money from your portfolio, if you have a large proportion in stocks and the stock market goes down like we saw in 2008 when it went down pretty dramatically – It's difficult to recover if you're both taking money out of a portfolio and the value of the portfolio is declining swiftly or dramatically. So that's why financial advisors recommend that retirees have a certain decent percentage in bonds because bonds tend to be less volatile. The value changes less dramatically typically.
What reasons do older Americans give for investing aggressively in stocks?
So given that, I guess the big question is why have older Americans become more reliant on stocks in their retirement portfolios?
There's a bunch of reasons. You know, some people are still working and, you know, maybe they don't have a retirement date in sight. You know, people who are 55, some of those people maybe are going to work for another 10 or 15 years or they don't really know when they're going to retire, but they feel they can afford to take the risk. Other people maybe are in retirement but have other sources of income that they rely on. Maybe they have pensions, they have Social Security. They don't really rely on their 401k nest egg to provide a large proportion of their savings. They feel they can afford to take the risk. There are other people I've spoken to who are pretty convinced. Maybe they're in their mid-60s, but they've had relatives live well into their 90s, and they're pretty convinced that they need to target a long-term horizon.
So they're willing to take the risk because they feel like they need to invest more aggressively because they have years in which they think they might live. Some other people don't see alternatives to stocks.
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Chapters
7 chapters
1
What is the main topic discussed in this episode?
0:02–0:22
2
How common is heavy stock exposure among Americans aged 55 and older?
0:22–1:06
3
What do financial planners traditionally recommend for retirement asset allocation?
1:06–2:20
4
Why is holding 70%+ in stocks later in life considered risky?
2:20–3:09
5
What reasons do older Americans give for investing aggressively in stocks?
3:09–4:23
6
How did past market crashes and recoveries shape older investors' attitudes?
4:23–6:01
7
Why are younger investors more likely to be in stock-heavy target-date funds?
6:01–7:37
Speakers
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