“Retirement has changed, it’s evolved, and is much different today than 20, 30, and 50 years ago,” Jonathan Young, Senior National Accounts Manager with Capital Group | American Funds said. “Retirees are much more active and have much more involved lifestyles. The truth of that for our business is that to have a happy, healthy retirement with dignity, it’s going to require more retirement savings.”
It was one of many points made during his presentation Monday afternoon at the Retirement & Longevity Summit in San Diego.
There are several myths that are at the root challenge of investing, he explained in a pre-session interview. The first is that markets are efficient, and investors are rational.
“If investors just do the right thing and markets are efficient, everything will take care of itself,” Young said “But markets are not efficient, and investors aren’t rational. However, investors are human, and that irrationality comes from emotions, especially with money. Add in what’s going on in the economy and the world, it just makes it much more challenging. We often do the wrong things at the wrong time for the wrong reason, and we do it over and over again. In other words, we misbehave.”
He then quoted legendary American economist Benjamin Graham, “‘The investor’s chief problem, and even his worst enemy is likely to be himself.’ We need to get people beyond themselves.”
Three behavioral biases
Young listed three broad types of behavioral biases we all face—not only plan participants but plan sponsors and advisors: Timing biases, uncertainty biases, and attention biases.
“Timing biases are really the challenge,” he noted. “There is the cost of living in the now, and because of that, we can’t see the forest for the trees. We can’t see tomorrow. The uncertainty bias is the challenge of truth versus perceptions and what it does to our ‘rational brains.’ Attention biases are where we focus our attention, where we get our information and how that distorts our viewpoints.”
Claiming behavioral finance is his passion, there is more work to be done as an industry to draw attention to its tenets. The more attention that’s drawn to behavioral finance, the better.
“It’s an opportunity, but also an obligation to step in and make a more positive difference for the sponsors and participants we serve,” Young concluded. “That includes pushing plan sponsors to more aggressively adopt auto features and challenging them to increase auto-escalation rates. As financial professionals you often serve as the first and last lines of defense between investors and their emotional decisions. We thank you for standing in the breach of improving participant outcomes.”
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
