Most Retirement Savers Playing It Safe. NewsWire

NewsWire: 7/13/21

• According to a new report, most retirement savers are doing nothing more than just sending money into their accounts every month. Despite the meme stock frenzy, trading in 401(k)s is even less common now than it was in the early 2000s. (Associated Press)
• NH: After all the reporting on GameStop (GME) and AMC, you may be under the impression that everyone is snapping up meme stocks--or, at the very least, taking a lot more risks with their personal financial assets. But a new Vanguard report on retirement savers extinguishes that idea. 
• We don't yet know what a cross-section of all investors did in 2021. But according to this paper, the vast majority of Vanguard clients did relatively little with their retirement accounts in 2020. Most people just automatically sent in their money every month, period.
• Only 10% of defined contribution account holders changed funds at all last year. Yes, that's up a bit from the previous few years. But it's actually way down from pre-GFC. In the early to mid-2000s, 14% to 20% of accounts changed funds every year.

• So what's changed? Two mammoth bear markets. And generational turnover. The rising generation of young investors fifteen years ago were Gen Xers. But today, they are risk-averse Millennials.
• Sure, most retirement savers aren't able to trade individual tickers in their accounts. Yet even when offered this ability, very few retirement savers want it. In 2020, 33% of 401(k) retirement savers in the Vanguard sample were given the option of opening self-directed brokerage accounts, which enable users to trade stocks and ETFs directly. But only 1% of savers accepted the offer.
• The decline in active fund selection has coincided with a rise in professionally managed accounts. In 2004, only 7% of Vanguard clients were exclusively invested in an “automatic investment program.” By the end of 2020, the share was 62%. The most popular of these managed accounts are target-date funds. 88% of Vanguard clients bought at least one. (Millennials are clearly having a bandwagon effect here.)
• Of course, these data only concern Vanguard users and retirement accounts.  But other sources also confirm that few Americans are turning into meme-stock buccaneers. A recent survey from The Harris Poll found that a quarter of Americans bought at least one meme stock in January of 2021. That sounds like a lot. Until you realize that most of these investors regarded meme stocks like booster packs on Candy Crush. 53% of those buyers bought less than $250 worth of shares. That's maybe a quarter of a typical "stimmie" check. Translation: These are not serious investors.
• IMO, the Vanguard report offers no evidence that retirement savers are systematically taking more risk in the wake of the pandemic. They are not rearranging their portfolios in response to the latest Reddit post. Instead, they are trusting the long game. I have previously rejected the media claim that American investors are embarking on an era of risk-taking. (See "A New 'Roaring Twenties?' Not a Chance.") This report does nothing to change my mind.