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The Reformed Broker

Regarding that alleged 'near-death' of equities

Interesting data from a recent report on the saving and investing habits of investors shows that yes, stock fund purchasing is down, but the typical plan account is still majority equities.  And also, it's never just that simple.

By Guest blogger / June 28, 2012

In this June 2012 file photo, job seekers have their resumes reviewed at a job fair expo in Anaheim, Calif. Consumer confidence fell in June for the fourth month in a row as some Americans worry about slow hiring, low home values and the stock market.

Jae C. Hong, Gilr/AP


My friend Jason Zweig (of the WSJ's Total Return blog) dug up some interesting data from a recent report on the saving and investing habits of investors.  Vanguard looked at 3 million retirement plan accounts it administered and determined that yes, stock fund purchasing is down, but the typical plan account is still 65% equities.  And also, it's not quite that simple...

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Joshua has been managing money for high net worth clients, charitable foundations, corporations and retirement plans for more than a decade.

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The story gets more interesting when you look beyond people’s balances to see what they are doing with the contributions from their current paychecks. Fully 71% of that money is going into stocks, reports Vanguard – up one percentage point from 2010 and three points higher than in 2009.

If this is “the death of equities,” the funeral seems extraordinarily well-attended.

There is something subtle going on beneath the surface, however. The share of new contributions going directly into diversified stock funds is only 38% – down drastically from 51% in 2007. Employees have also scaled back their stake in their own company stock, to 6% now from 8% in 2007. The money they have yanked from company stock and diversified equity funds has migrated into target-date funds, those prebundled baskets of stocks, bonds and cash that are aimed at workers who will retire in specific years. When you count the portion of target-date assets that are invested in stocks, they account for about a 27% commitment to equities.

The deal with the target date fund popularity is very simple: First, they are in every plan now, just about.  It's one of the few things mutual funds have come up with in the past decade that actually makes sense in their wrapper and has stuck.  Second, the concept of auto-rebalancing based on a goal off in the future (as opposed to trying to time markets and retirement concurrently) is an extremely attractive one for the severely tormented investor class circa 2012.

Make no mistake, this is the investor saying "I can't even deal with this anymore, here - you do it for me."

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