Investors Sticking With Their 401(k)s
Judging from the actions of the 11 million participants Fidelity Investments serves through their 401(k)s, investors remain faithful about saving for retirement.
"Despite unprecedented volatility in the capital markets, employees are staying the course in their retirement savings," said Scott B. David, president of workplace investing at Fidelity.
The average amount of money invested per individual in 2008 was $5,600, up slightly from the year before. That helped prop up average balance declines of 27%, to $50,000 from $69,200; the broader market fell 39% in the year. Hardship withdrawals also continue to rise, but the average amount decreased slightly to $6,000.
Further, Fidelity reported that the number of people making changes to their 401(k) even fell slightly in 2008, to 13.9%, from 14.2% in 2007. That said, investors flooded Fidelity's phone lines with more than 100,000 calls a day during the volatile months of September and October, as the Dow Jones Industrial Average fell below 9,000 for the first time in five years.
In addition, netbenefits.com, the website Fidelity runs for 401(k) participants, had 4.6 million unique visitors in October, 14% higher than a year before and a new record. Of these visitors, nearly one million used at least one of the retirement planning tools available on the site.
"Workers engaged with us more in trying to better understand their risk tolerance and an appropriate asset allocation and diversification strategy," David said.
Fidelity also found that due to the popularity of target-date funds, 401(k) investors today are better diversified. Only 16% had 100% of their portfolios in equities in 2008, down from 20% in 2007 and 37% in 2000. And whereas company stock accounted for 20% of the average portfolio's assets in 2000, that is now down to 10%. By the end of 2008, 60% of plans had target-date funds as a default option, up from 38% at the end of 2007 and 5% at the end of 2005. Auto enrollment also rose to 16% in 2008 from 11% in 2007. And companies using auto increases rose to 74% from 70% a year earlier.
Schwab Offers Advice For Those About to Retire
In light of the recent market downturn and the difficult position that has left millions of near-retirees, in Charles Schwab has launched a new suite of advice and tools specifically geared to investors within 10 years of retirement, called Real Life Retirement Services. Built as a type of social network, the accompanying website gives investors a place to ask questions and share their own experiences, including a survey that shows them how their retirement expectations compare with their peers.
"We have a different point of view from other financial firms in how we approach retirement," said Schwab Vice President Mark Jamison. "For most people, retirement isn't about hang-gliding or hitting the golf course every day. People dream of balance-enjoying a comfortable lifestyle, covering healthcare costs, spending time with family and friends, and making sure they won't run out of money. We chose to build a service that addresses real life challenges people are facing today, which typically don't involve a life sailing around the world."
The service begins with a complimentary consultation with a Schwab professional on what an individual can do to close the gap between income and expenses by focusing on how to build additional income streams into their portfolio-be that through a dividend-paying mutual fund, a fixed-income fund or an annuity. The Schwab financial adviser will also make recommendations on which investments to draw down first and when to begin taking Social Security payments. Schwab also conducted a retirement survey among 1,000 people in early January and found that 26% of people between the ages of 55 and 64 do not know whose retirement planning advice to trust. In addition, 33% said they were confused about weighing the immediate marketplace alongside their long-term goals.
Golden Age Expected for Environmental Investing
Investors overwhelmingly believe that environmental issues offer tremendous long-term investing opportunities, Allianz Global Investors found in a survey of 1,264 adults with household financial assets of at least $100,000 in December.
Seventy-eight percent said the nation is likely to see more environmentally friendly policies in the first year of the Obama Administration than in the entire eight years of the Bush Administration. Another 74% said they believe Congress is now more supportive of investing in environmental technologies than before. Ninety-one percent said that finding solutions to environmental problems will be a major issue for years to come, and as for the time being, 64% said the environment is the most attractive of 10 investment sectors.
"Barack Obama won this election on a platform of change, and the regulatory changes are likely to be very positive for environmental investing," said Bozena Jankowska, lead portfolio manager of the Allianz RCM Global EcoTrends Fund and head of sustainability research.
Brian Gaffney, managing director and chief executive officer of Allianz Global Investors Distributors, added: "The need for pollution control, clean water and energy efficiency is not going away. Investors perceive there is real opportunity here, and they want to capitalize on it."
PowerShares Planning Mortgage-Backed ETFs
Already, many believe that there is a killing to be made in underpriced mortgage-backed securities. Evidently, one of those investors is PowerShares Capital Management, which has filed two actively managed exchange-traded funds with the Securities and Exchange Commission. The funds will invest in both prime and alt-a mortgages, but not subprime mortgages.
Other seasoned investors are also taking out big bets on mortgage-backed securities, including the PIMCO Total Return Fund, which has 62% of its assts in MBS, and the TCW Total Return Fund, which has almost all of its assets in mortgage debt.
Legg Mason Overhauls Mutual Fund Lineup
Following the sharp market downturn last year and steep investor redemptions, Legg Mason is about to overhaul its entire mutual fund lineup of 142 funds, Matthew Schiffman, head of product and marketing at Legg Mason told The Baltimore Sun. And it's no wonder, since Schiffman accepted the new position at Legg Mason in November, with the goal of creating a product innovation team.
As part of the reorganization, Schiffman plans to eliminate poorly performing funds and introduce two new funds by the spring, one a municipal bond fund and the other a global allocation fund-of-funds.
Schiffman said the market's poor performance is prompting all fund companies to rethink their lineups. "All of us, investors and money managers, stumbled out of 2008," Schiffman said. "We need to get back to the basics of getting people to the table and restoring confidence that long-term investing makes sense."
Legg certainly was hit with heavy redemptions in 2008, losing $21.8 billion from its equity and bond funds, the second-worst hit fund complex behind Fidelity Investments.
Legg last reorganized its fund lineup in 2006 by eliminating about one-third of its funds, following a swap deal with Citigroup.
Vanguard Launches Total Bond Fund II
Vanguard has introduced a new, broad market bond fund to be used exclusively by its Target Retirement and LifeStrategy families. The Vanguard Total Bond Market II Index Fund will be benchmarked against the Barclays Capital U.S. Aggregate Bond Index and is a clone of the $65 billion Vanguard Total Bond Market Index Fund.
"It is clear that our funds-of-funds offerings will become increasingly large shareholders of Vanguard Total Bond Market Index Fund," noted Vanguard Chief Investment Officer George U. Sauter. "To mitigate the impact of future rebalancing on that fund, we believe it is necessary and prudent to introduce a second bond market index fund." Holdings in the Vanguard Total Bond Market Index Fund that the firm's 11 LifeStrategy and Target Retirement funds now hold will be transferred to the new fund. Certainly, assets in the target retirement funds offered by Vanguard have more than doubled over the past three years, to $33.5 billion.
Janus Exiting Institutional Money Fund Business
Janus is exiting the institutional money market fund business. "Given the meaningful changes to the competitive landscape of the institutional cash management business," said Janus CEO Gary Black, "Janus believes it is in the best interest of our clients to focus its institutional distribution and investment management resources on its core business of long-term equity and fixed-income investing." As a result, Janus stopped accepting investments from new investors in its three institutional money market funds on Jan. 22 and stopped accepting additional investments from existing investors on Feb. 2. The three funds will be liquidated on April 30: Janus Institutional Money Market, Janus Institutional Government Money Market and Janus Institutional Cash Management Fund.
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