The Markets October 15, 2014

No Strong Participant Reaction to Market Swings

While all of the major asset classes suffered losses during the month of September, Aon Hewitt’s 401(k) Index shows light trading by 401(k) plan participants.
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Only about 0.021% of 401(k) balances transferred in September, marking the 11th consecutive month that trading activity was below 0.03%. Total transfer activity was $297 million, with two days having above normal trading activity, according to Aon Hewitt. 

Plan participants favored equity funds over fixed-income funds for 55% of the trading days in September, a reversal from August, when participants favored fixed-income investments on 65% of the month’s trading days. Overall, transfer activity moved away from diversified equities (equity assets excluding company stock) by $101 million (0.06%). For the quarter ending September 30, 51% of trading days favored equity funds, Aon Hewitt says. 

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Lifestyle and premixed funds saw the most inflows with $129 million (44%), while large U.S. equity funds received $59 million (20%) and international funds took in $36 million (12%). Company stock funds led net outflow activity with -$212 million (71%), followed by small U.S. equity and mid-cap U.S. equity with -$45 million (15%) and -$34 million (11%), respectively, transferring out for the month.

After incorporating trading and market activity, participants’ overall allocation to equities decreased marginally to 65.5% from 65.9% last month, the index shows. Future contributions to equities increased marginally to 67.0% from 66.5%.

The domestic equity markets struggled in September, as the S&P 500 Index returned -1.4% during the period. Small cap U.S. stocks, as measured by the Russell 2000 Index, lagged their large cap counterparts, returning -6.1%. Non-U.S. equities, as measured by the MSCI All Country World ex-U.S. Index, decreased by -4.8%. After posting seven consecutive months of positive performance, the MSCI Emerging Markets Index was the worst performing index in September, posting a return of -7.4%. The Barclays U.S. Aggregate Index, a measure of the fixed-income market, also posted negative performance during the month with a return of -0.7% as the 10-Year Treasury yield interest rates increased.

While volatility increased in the equities markets in the third quarter, very little money was transferred, with an average net activity of 0.20% of balances and just three days above normal trading levels. On the equity front, September reversed almost all of the gains of July and August, with the S&P 500 posting a slightly positive return of 1.1%. 

U.S. small cap stocks underperformed their large cap counterparts during the period, as the Russell 2000 Index lost -7.4%. Non-U.S. stocks lost ground in the quarter as the MSCI All Country World ex-U.S. Index and the MSCI Emerging Markets Index decreased by -5.3% and -3.5%, respectively. U.S. bonds, as measured by the Barclays U.S. Aggregate Index, were able to eke out a small gain during the quarter, Aon Hewitt says, returning 0.2%.

Aon Hewitt’s September 401(k) Index observations are available on its website.

Data & Research October 15, 2014

Retirement Planning Becoming More Difficult

Three in five U.S. households say retirement planning, including the determination of how much to save for retirement, is more difficult in 2014 than in the past.
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This is a new high and a 10 percentage point jump from 2012, according to the study, “Engaging Investors: Reasons for Seeking Help and Taking Action,” by Hearts & Wallets. In 2014, nearly two-thirds (64%) of the 90 million U.S. households with investors ages 21 to 64 who do not plan to retire within five years, referred to as “Accumulators,” said they have difficulty with retirement planning. This is up from 54% in 2012 and 50% in 2010.

The most difficult tasks for Accumulators include identifying they year they might stop working (61%); estimating the required minimum withdrawals from retirement accounts (57%); deciding where to put savings (54%); and getting started with saving and investing (51%).

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In contrast, for pre- and post-retiree households in or within five years of retirement, there is less difficulty with these tasks, according to the study. Their most difficult tasks in 2014, similar to 2013 levels, are estimating or budgeting spending in retirement (33%); determining appropriate levels and types of health insurance (31%); and determining the amount of income that can safely/sustainably be withdrawn from personal assets (28%).

High-net-worth investors also grapple with retirement planning, the survey found. For investors with $500,000 to $2 million in investible assets, 45% have difficulty with retirement planning. For investors with more than $2 million, 27% find this task difficult.

Nationally, the biggest advice gaps are in knowing how to find the right resources for retirement planning (40%), handling market volatility (38%), choosing appropriate investments (37%), and determining appropriate insurance levels (36%). The study identifies key factors driving difficulty with retirement planning, with a big correlation between increasing confusion over investment information overload and more difficulty with retirement planning, as well as increasing fear of being ripped off by financial professionals, less enjoyment and confidence with money.

“There’s a real need for professional advice, even among more sophisticated investors,” says Chris Brown, Hearts & Wallets principal and co-founder. “More than 50% of all U.S. households currently aren’t getting the help to be prepared for whatever the future brings.”

The study analyzes attitudes and behaviors of investor life stages from age 21 to the later retirement years and is drawn from the Hearts & Wallets Quant Panel Database. The Quant Panel serves as the engine for Hearts & Wallets annual reports as well as emerging trend analysis and consists annually of more than two million data points from 85 families of savings and investment questions asked during 40-minute interviews of 5,500 U.S. households.

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