Jonathan Bell Lovelace believed that fundamental research is essential to achieving superior long-term investment results. The small company he founded in 1931 has grown into one of the world’s most respected financial institutions.
Lessons From Boomers and Retired Investors
January 21, 2016
Experienced Investors to Younger Generation: Don’t Chase Unicorns
LOS ANGELES — In spite of widespread concerns among Americans about outliving their retirement savings, the Baby Boomer generation and older, retired investors are positive and optimistic about their retirement, according to a new survey of investors age 50 and older with $100,000 or more in investable assets. “The Wisdom of Experience” survey released today by American Funds, a family of mutual funds from Capital Group, one of the world’s leading investment management firms, also found that – far from being tempted to chase fast returns or the latest hot stock – these investors feel smartest when sticking to a long-term investment strategy.
“We wanted to understand what makes investors who are closer to or in retirement feel smarter about investing and how they define a purposeful next chapter,” said Pete Thatch, Product Management Director. “While everyone has a different aspiration for retirement, the survey uncovered a certain wisdom of experience in Boomers and retired investors’ investment approaches, and key lessons and insights for younger generations.”
Smart Money Stays Calm in Choppy Waters
Survey participants have high expectations of their nest egg: 86% expect their savings to generate income and even grow in retirement. To achieve this, 69% say they do not change their plans when the market fluctuates, and 64% say sticking with their investment strategy makes them feel smarter as an investor. They have their priorities straight: A mere 4% said that picking a hot stock or market sector makes them feel like a smarter investor.
When it comes to investing to generate income for a long retirement, 75% plan to stay invested in equities and 74% also believe the right mutual funds can outpace the market and do better than average. Seventy-two percent also say mutual funds with objectives such as growth and income, lower volatility and low fees can help people live better and enjoy their active retirement years.
Advice to Kids and Grandkids: “Invest Earlier than I Did”
When it comes to advising the next generation, most respondents tell their children and grandchildren to start saving for retirement earlier than they did. Sixty-four percent advise starting saving before the age of 25 and only 10% say they should start after the age of 30. By comparison, only 31% of surveyed investors began saving for their own retirement before the age of 25, and 42% began after the age of 30.
Downside Protection Could be a Blind Spot
Four out of five investors rank protecting their savings from market downturns as a key priority and believe that lower volatility and downside resilience – that is, funds that hold up better than the market in bad times – are important for mutual funds. However, only half (53%) are aware that index funds expose investors to the full ups and downs of the market, and slightly more than one-third (36%) say index funds are riskier for people who have less time to build their savings or recover from a downturn.
“These findings suggest that while investors want to protect the downside and want funds that are less volatile and more resilient, their understanding of how index funds perform in various market conditions is limited,” Thatch added. “For instance, if the wealth in your portfolio decreases due to a market correction close to retirement, there is less time to make that up. We uncovered a need for more conversation and information on protecting against the downside.”
Working Boomers Less Confident, Still Optimistic
The survey data also reveal a less confident, but still optimistic outlook among the Boomer generation still in the workforce. For example, only half of non-retirees expect to have more retirement income than their parents did compared to 70% for older, retired investors. Three-in-ten (29%) of these non-retirees plan to continue to work part-time to fund a more active semi-retirement, regardless of whether or not they expect to have more retirement income than their parents did.
Nevertheless, these investors are an optimistic bunch. A clear majority say they are or expect to feel “satisfied” or “relaxed” in retirement. Interestingly the optimism remained consistent across gender, age and asset level. Less than one in twenty of those surveyed expressed negative feelings about their retirement such as dissatisfaction, boredom or regret.
Different Definitions of “Enough For” Retirement
Survey respondents define the next chapter of their lives in different ways. When asked what they would like to have “enough for” in retirement, over half count travel as a top priority, with 58% saying they would like to have enough for an annual vacation to a resort or for site-seeing and 56% saying they would like to travel the world. Other aspirations include donating a meaningful amount to charity each year (35%), helping fund their grandchildren’s education (25%) and endowing a scholarship for someone not related to themselves (6%).
Some 90% of those surveyed say their retirement lifestyle will not be like that of their parents. Yet current retirees and those 50 years of age and older still working have diverging expectations.
For complete survey results, please visit The Wisdom of Experience: Lessons From Boomers and Retired Investors
The Capital Group is one of the oldest and largest funds management groups in the world, managing equity, fixed income and private equity assets for all types of investors. Since 1931, Capital Group has been singularly focused on delivering superior, consistent results for long-term investors using high-conviction portfolios, rigorous research and individual accountability. Today, Capital Group manages more than US$1.4 trillion in long-term assets for millions of individual and institutional investors around the world.
The Capital Group companies manage equity assets through three investment groups. These groups make investment and proxy voting decisions independently. Fixed income investment professionals provide fixed income research and investment management across the Capital organization; however, for securities with equity characteristics, they act solely on behalf of one of the three equity investment groups.
The survey was conducted from October 19-22, 2015, on behalf of Capital Group Companies, Inc. APCO Insight, a global opinion research consultancy, conducted an online quantitative survey among U.S. adults aged 50 years or older who have at least $100,000 in investable assets and some responsibility for making investment decisions for their family. A total of 1,035 respondents participated in the survey. The sample reflects national representation on key demographic measures according to the U.S. Census Bureau.
© 2016 American Funds Distributors, Inc.
Investments are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other entity, so they may lose value.
Investors should carefully consider investment objectives, risks, charges and expenses. This and other important information is contained in the mutual fund prospectuses and summary prospectuses, which can be obtained from a financial professional, and should be read carefully before investing. Similar information about collective investment trusts can be obtained from Capital Group or participants’ plan provider or employer.