Most Americans admit to taking a shot in the dark when choosing investments—and many think their retirement will suffer as a result.
In a survey by Legg Mason, nearly nine in 10 U.S. investors said they are focused on saving for retirement, leaving an inheritance or similar long-term investment goals.
But few think they’re making the best choices. Just 32 percent are “very confident” their investment returns could carry them through to their 80s or 90s.
Among those who claim to be the most sure-footed, the majority are Millennials. Sixty percent believe they’re investing wisely, while only 17 percent of Baby Boomers are equally as self-assured.
“Investors must be confident in selecting proper investments over the long term,” Will Coleman, Legg Mason’s head of Retirement in the U.S., said in a statement. “Uncertainty can derail well-considered plans and, worst of all, lead to emotional reactions to buy or sell that investors might regret.”
In fact, around a third of survey respondents confessed to making an emotionally charged financial faux pas. Those who identify as “expert/advanced” investors (somewhat counterintuitively) made up the majority—47 percent.
And an even higher number of Millennials (60 percent) say emotions led them to sell in a 401k plan—a decision they later regretted.
“How retirement savers allocate their assets can make a big difference in both the timing and quality of their retirement. So, it’s crucial for them to know and maintain the right mix of investments, especially as they move closer to retirement,” said Tina Wilson, head of MassMutual Investment Solutions Innovation. “Baby Boomers should be thinking in terms of preservation while Millennials need to emphasize growth.”
Investors surveyed, no matter their age, “were overwhelmingly bullish on equities in their retirement holdings,” according to Legg Mason.
Many also held high amounts of cash in spite of the positive market returns experienced throughout the last several years, leaving much room for advisors to weigh-in on what’s appropriate.
Around 22 percent of those surveyed say they don’t know how their 401k is allocated. Among those who do, on average, investors report:
- 51 percent equities (28 percent in their other (non-401k) accounts)
- 15 percent fixed income
- 12 percent cash
- 11 percent target date funds
- 10 percent commodities
“It is surprising to see employed Baby Boomers with substantially higher allocations to equities in retirement accounts (60 percent), compared to their other (non-401k) accounts (34 percent),” observed Adam Petryk, president of Legg Mason affiliate QS Investors. “In general, as individuals get closer to retirement, their portfolios are more vulnerable to market volatility, as they have less time to recover from a large drawdown. Boomers may be making large allocations to equities in order to reach their retirement goals, but in doing so are not protecting the capital already accumulated from a potential market shock.”