The Markets October 26, 2017

Investors Who Held Steady After the Great Recession Have Been Rewarded

However, Fidelity Investments found that 25% of investors have switched to more conservative investments since 2007.
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In the decade since the Great Recession of 2007, Fidelity Investments has found mixed reactions from investors who have been with the markets since that time.

Those who did not flee to cash but remained invested have portfolios that are 50% higher than those who sought safety, Fidelity found. However, 25% of people have reassessed how much risk they can handle and have moved to more conservative portfolios, where they have remained in the past 10 years.

Today, only 38% of people feel more confident in their investment approach than they did in 2007, down from 48% in 2012.

“Although there are many reasons why people chose to exist the market, looking back a decade later, investors who managed to stay the course have enjoyed better results,” says Ken Hevert, senior vice president of retirement at Fidelity. “What we’ve seen in the ensuring years is proof that the most prudent investors are those who resist being reactive and instead keep their financial objectives firmly in mind by looking past market volatility. No one knows when the next market downturn will take place, but those who learned from the last great financial crisis are more likely to be better positioned to weather future financial storms.”

Fidelity notes that from late 2007 to early 2009, the S&P 500 lost 40% of its value; however, between June 2007 to today, the S&P is up 97%.

NEXT: Four lessons from the Great Recession

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Fidelity says the first lesson investors should take to heart is to keep their eyes on the long term. Baby Boomers’ average 401(k) account balance in June 2007 was $115,000. Boomers who continued to contribute to their account saw that balance grow to $315,000 this past June—a near tripling of wealth in 10 years.

The second lesson investors should consider, Fidelity says, is to save more and reduce debt. The company’s survey of 1,205 investors asked them what actions steps they have taken since the Great Recession. Thirty-six percent said it has been to reduce debt, and 26% said it has been to save more. Fidelity says its recordkeeping data shows that retirement plan participants saved an average of 7.7% of their salaries as of the second quarter of 2007. A full decade later, that is now 9.5%.

The third lesson, according to Fidelity, is to have a diversified portfolio of stocks, bonds and cash. The fourth and final lesson Fidelity offers to investors is to work with a financial adviser. Fidelity found from its survey that those investors who have an adviser are saving more (31% versus 23%) and are more confident about their approach to investing than those who do not have an adviser (50% versus 31%).

Hevert notes that by working with an adviser, investors are more likely to remain committed to the markets.

Data & Research October 26, 2017

Lack of Funds for LTC is Americans’ Greatest Fear About Aging

Yet only 20% have taken any step toward funding their long-term care expenses.
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Not having enough money to pay for health care or long-term care is the greatest fear adults have about aging, Genworth found in a survey of 1,200 people. 

Despite these overwhelming apprehensions, only 20% of Americans have taken any steps towards figuring out how to finance long-term care costs.

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In addition, only 50% feel they should be responsible for their own care as they age, with the remainder feeling it is the responsibility of the government, their family or community or faith-based organizations.

“As these findings suggest, many people will not be prepared financially to handle the impact of growing older, which means the burden of caring for them will fall to their families, friends and communities,” says David O’Leary, president and CEO of Genworth’s U.S. life insurance division. “That’s why it is so important for people to talk to their families about who will care for them, educate themselves about the cost of care and develop a plan for how they will pay for it.”

NEXT: Additional misunderstandings

Sixty-six percent of Americans mistakenly think government programs will fund long-term care, despite the fact that Medicare only pays a limited amount and Medicaid has strict financial eligibility requirements. In addition, 45% of respondents either confused Medicare and Medicaid or did not know the difference between them.

Forty percent underestimated the hourly cost of professional help in the home, and 52% did not know that a long-term care insurance policy can cover help in the home. Sixty-one percent of respondents did not know that long-term care can be personalized and that the insurer can help them find quality care providers.

Genworth says that 70% of the people who are turning 65 today will need long-term care at some point in their lives. Nonetheless, only 52% of Boomers think they will need these services. However, Millennials and members of Generation X are more realistic, with 64% and 65% of these demographic groups, respectively, conceding that they may need long-term care in the future.

Genworth discovered that Millennials, who already are facing the prospect that Social Security may not exist in its current form by the time they retire, are the most likely group to have taken action to obtain long-term care insurance.

“People are never too young to begin preparing for how to pay for long-term care costs, which as often overlooked as a major retirement expense and can quickly wipe out a person’s savings,” O’Leary says. “Understanding the costs is a good first step, followed by a conversation with a financial professional about potential funding options that will protect assets against long-term care costs.”

Genworth has developed a video, “Let’s Talk,” to help families confront the delicate subject of long-term care. The company also points to a website from the government that explains Medicare and Medicaid coverage: longtermcare.gov. For a link to Genworth’s offerings, go to genworth.com/longtermcare.

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