The Markets May 21, 2019

Average Self-Directed Brokerage Account Jumped 8.7% in Q119

The large increase, rising to an average of $267,609, was due to the improvements in the market, Charles Schwab says.

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The average self-directed brokerage account (SDBA) balance rose to $267,609 in the first quarter, an 8.7% increase from the last quarter of 2018, largely due to strong market returns, according to Charles Schwab’s SBDA Indicators Report.

Thirty-seven percent of participants’ assets were in mutual funds, the same as the previous quarter. Equities were the second-highest holding, at 29%, followed by exchange-traded funds (ETFs) (17%), cash (13%) and fixed income (3%).

Last year, Schwab’s analysis found 18.7% of SDBA accounts were managed by an independent investment adviser.  Those participants who used advisers displayed a more diversified asset allocation mix and had a lower concentration of assets in particular securities. As for ETF holdings, advised participants again had more balance among all the holdings, not having more than 3% of any one ETF.

Among mutual funds, large cap represented 29% of all allocations, followed by taxable bond (20%), international (16%), hybrid (12%) and small-cap funds (12%).

Among equities, Apple remained the top overall holding, representing 9.1% of all equity holdings. Amazon was next (6.4%), followed by Berkshire Hathaway (2.5%), Microsoft (2.1%) and Facebook (1.8%).

Among ETFs, investors allocated the most dollars to U.S. equity (48%), followed by international equity (16%), U.S. fixed income (15%) and sector ETFs (11%).

On average, participants made just 6.5 trades during the quarter and held 10 positions in their SDBA. Baby Boomers ended the quarter with the largest balance of all generations, at $374,622, up from $342,810 in the last quarter of 2018. Gen Xers had the next highest balance ($202,481), followed by Millennials ($65,928).

The average age of the SDBA participant was 51. Gen Xers made up 41% of all participants, followed by Baby Boomers (40%) and Millennials (12%).

The report is based on data from participants in the Schwab Personal Choice Retirement Account (PCRA).

Data & Research May 20, 2019

Financial Stress Flows Up and Down the Generations

A new TIAA survey suggests Americans who are concerned about their parents’ financial security are more likely to feel stress about their own retirement preparedness.

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Survey data shared by TIAA shows more than half of respondents (57%) feel their parents’ financial planning for retirement has impacted their own, with almost half (44%) saying they have avoided taking on significant debt to remain in a better position to provide future assistance.

At the same time, TIAA finds, 38% say they have adopted a more conservative approach to everyday spending, for example by consciously limiting their spending on non-essentials, in order to remain financially able to support their parents in retirement.

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Dan Keady, chief financial planning strategist at TIAA, observes that individuals lacking confidence in their parents’ financial security in retirement (27%) are twice as likely to lack confidence in their own retirement as those who are confident in their parents’ (72% versus 36%).

“We’ve seen firsthand what the data shows,” Keady says. “People who are concerned about their parents’ financial well-being in retirement may be sacrificing their quality of life today out of concern for their own financial future.”

The TIAA survey shows that Generation X and Baby Boomers are significantly less optimistic than Millennials about their parents’ financial outlook. Just over one-third of Gen X adults and only one in four Baby Boomers describe their parents’ financial outlook as “very good” or “excellent,” compared to more than half (52%) of Millennials. According to TIAA, the same applies when it comes to confidence in their parents’ current or future financial security in retirement. While nearly half (47%) of Gen X and nearly a third (34%) of Baby Boomers say they are confident in their parents’ current or future financial security, a strong majority of Millennials says this is so (60%).

Keady points out that nearly four in 10 Gen X and Baby Boomers disagree that their parents’ approach to saving and investing “is admirable and one to emulate,” compared to a quarter of Millennials.

Shelly-Ann Eweka, a director of financial planning for TIAA, warns that Millennials’ optimism may be misguided, highlighting need for dialogue. Indeed, the survey results also suggest that the perceptions people have about their parents’ financial plans may not always match reality. Seven in 10 Millennials rate their parents’ financial outlook as good to excellent, yet only half of Gen X and Boomers (i.e., those in their parents’ generation) rate their own financial outlook the same .

Keady and Eweka warn that the confidence that Millennials have about their parents’ finances may actually create a false sense of security, especially when individuals mistakenly believe they will receive an inheritance.

“Open dialogues and a well-planned retirement can help alleviate family stress and may give you permission to live your life without the worry of outliving your savings or becoming a financial burden to others,” Keady says.

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