Seek smooth, consistent returns over many market cycles
Minimize large losses to help participants remain invested
Reduce costs where possible
Adjust allocations over time based on participant age and risk tolerance
Participants and Sponsors likely expect their retirement plan: will achieve their goals addresses risk, or someone is watching the store
Annualized gain typical participant expects to earn over time in retirement accountSource: MFS, see 2013 Participant Pulse
But are their
Yet the average forecasted
return for equities is only 4.9%
That’s much lower than
returns assumed by
most retirement plans.
#1 driving emotion of plan participants is
LOSS AVERSION - the fear of losing money
They expect a professional
is 'watching the store' to
help them avoid
Participant 'risk tolerance'
selections indicate this...
of Plan participants
A $ 1,000,000 PORTFOLIO
WOULD HAVE FALLEN TO
|Dot-Com Crash||Sept 2000||Sept 2002||-44.73%||$552,700||October 2006|
|Financial crisis||Nov 2007||Nov 2009||-50.95%||$ 490,500||March 2012|
U.S. equity fund
Average 'at-retirement' vintage Target Date fund
2000-2010Source: Zephyr StyleADVISOR Morningstar Target Date 2000-2010 category average
In fact, since 1929, the S&P data shows that, on average,
move to cash after taking large losses, and miss rebounds,
get off-track and miss goals,
grow cynical and even give up on their retirement goals.
Dalbar studies and others prove this happens repeatedly.
of workers are
are ‘not at all
Investment "products" are often designed based on what's easiest to sell, or best "fits" into a box or new trend.
The result is a fee war. Yet results for the investors won’t change.
Statement Shock &
Poor Investor Behavior
Dot.com bubble bursts - Stocks begin multi-year slide, Nasdaq lost a total of 78% from 5047 to 1114
America attacked! Markets closed for 6 days. On September 17th the market lost 7.1%. The market lost 12% in the first week after the attacks.
Iraq War Begins - America at War Again Uncertainty makes for a wild ride, as the S&P 500 drops 6.34% in August 2002, rises over 7% by end of the year, only to drop again in March 2003 at beginning of war.
S&P 500 Index peaks at 1565. Mortgage crises begins.
S&P Slides 10% from highs
S&P 500 loses 10% in 1 month
Congress rejects $7B TARP bailout.
S&P 500 drops record 18.81% in 1 day!
S&P drops -9.03% in 1 day - another record for single-day point losses
S&P closes down nearly 11% from Jan. 1, 2009.
Total loss of nearly 56% from all-time highs in July 2007.
A sharp rebound begins.
S&P 500 loses more than 12% after downgrades of U.S. debt sovereign debt fear rises.
Fund flows show the average investor waited until 2013 before meaningfully investing again in stocks after bear market of 2007-2009, missing much of the rebound.
While the industry is happy to slap a sticker on a product and call it new, that doesn't make it a better solution.
of DC plans with automatic
enrollment use Target Date
strategies as the default (QDIA).
But how has this product
Target Date Fund 2000-2010
vintage lost an average
of 24% in 2008.
Many participants in those strategies were “subjected
a risk of loss that exceeded
their capacity for loss.”
Lowering the price of a product does NOT make it more effective.
In the next bear market, will participants
in these products behave differently?
Participants are told to 'buy and hold'.
Yet the data shows they often don't
'hold on when large losses occur'.
TDFs, Index Funds, ETFs do NOT
address poor investor tendencies...
They may even exacerbate them.
Your retirement plan needs to address participant behavior,
Fixed income is challenged
to protect capital and/or
Forecasted equity returns
look bleak, yet volatility
will likely remain.
The Achilles heal of retirement plans
is a bear market or major loss event.
It's time to put the Advisor back in the center
of participant and plan success.