Retirement plan participants are in the dark on a wide range
of financial topics—whether it is how compounding works, the consequences of
taking out a loan from a 401(k), how Social Security benefits are taxed, or
student loan debt.
These were the key findings from an online survey of 10,500
retirement plan participants by OneAmerica. At the bottom of the list of understanding for financial topics stands the Savers
Tax Credit, which only 10% of respondents say they understand, followed by taxation onSocial Security benefits (13%) and advanced investing (14%).
“Even people who are actively engaged with their retirement
planning are admittedly in dire need of education about financial topics,” says
Marsha Whitehead, vice president of marketing for retirement services for the
companies of OneAmerica. “The survey data tells us that even as we’ve made
retirement readiness easier to understand through the availability of online
calculators and helpful videos on our One Day is Today website, we can do a
better job of making participants more knowledgeable. Plan sponsors need to
understand and act on that.”
OneAmerica says that by providing holistic
financial wellness education, sponsors can help people take control of their
financial lives—such as student loans, credit card debt and budgeting—to put
them in a better position to save for retirement.
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Investors Miss Much of the Subtlety in ‘Active vs Passive’
Findings from a Natixis survey suggest many investors have
expectations that “don’t reflect a full understanding of the risks of index
funds versus the benefits.”
More than three-quarters of investors agree that index funds
and exchange-traded funds (ETFs) are usually a cheaper way to invest compared
with active equity mutual funds, but 71% “also believe they are less risky,”
according to new research from Natixis Global Asset Management.
According to Natixis, 64% of
investors “think using index funds will help minimize investment losses,”
despite the fact that the simple category title of “index fund” says next to
nothing about the actual risk characteristics of the investment being
considered. Similarly, nearly seven in 10 (69%) investors “believe index funds
offer better diversification,” and nearly the same number (61%) believe index
funds “provide access to the best investment opportunities in the market.”
Natixis finds many investors expecting lower risk via indexed investments “were surprised at the start
of 2016 when the Standard & Poor’s 500 had its worst opening since 1928.”
The index bottomed out on February 11, having fallen 10.5% since trading began
in January, Natixis explains. “The market did rebound, finishing the quarter
0.7% ahead, but tracking the index would have resulted in a hair-raising ride.
And while the first quarter might be seen as an anomaly, volatility in markets
is not.”
Taking this all together,
Natixis urges financial services providers to ensure their clients understand
up front what the real definitive characteristics of “active versus passive” actually
are.
“It is critical to understand
the risks in your portfolio, so it’s troubling to see investors mistakenly
assign benefits to index funds that they don’t actually have,” adds John
Hailer, CEO of Natixis Global Asset Management for the Americas and Asia.
“Index funds have a place in portfolios, but their low cost seems to be
providing a ‘halo effect’ that could blind-side investors during volatile markets.
Professional investors see the role for passive investing differently.”
“Nearly two-thirds (65%) say a
traditional approach (equities and bonds) to portfolio allocation is no longer
the best way to pursue returns and manage investments,” the research finds. “Further,
70% of investors want new strategies that are less tied to broad markets and
75% favor strategies that can help them better diversify their portfolio, an
approach that would seem to open the door to wider ownership of alternative
investments.”
While just over half of
investors (52%) surveyed actually own alternative assets—a grouping that
includes private equity, long-short funds, hedge funds and real estate—investors
who don’t own alternatives say the assets are too risky (56%). Another 34% in
this group “acknowledge they don’t understand how alternatives work,” and 28% “don’t
think they need alternatives.”
Natixis finds investors say
learning more about investing is the number one thing that would help them
better achieve their investment objectives. Overall, 68% of investors surveyed by Natixis “avail themselves of some type of advice, with 48% working exclusively with personal financial advisers and 6% using “only automated online services.” Another 14% use a combination of personal and robo-advisers.
“It is encouraging to see
investors are looking beyond traditional asset classes to build portfolios
designed to help them reach their financial goals through the widest range of
potential market conditions,” Hailer concludes. “However, it is clear the
financial industry still needs to provide more education to help investors make
informed decisions.”