F&M Bank - Economic News July 2011

8/6/2019 F&M Bank - Economic News July 2011

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The latest statisticson 401k plan balances, sav-ings rates, and employees

confidence in their ability toretire are troubling, to say the

least.Annual surveys by sever-

al major financial organiza-tions found that the averageemployee has an inadequateaccount balance, that employ-ees are guessing at howmuch they need in retirement,and that savings rateswhileup a bit in the last yearare

still probably too low.

Fidelity Investments, amajor investment and mutualfund company in Boston, saidits annual survey showed that

the average 401k balancehas increased to an all-timehigh of $74,900, up 12 per-

cent from a year ago.

Although the increase isencouraging, the averagebalance is pitiful. Using the 5percent rule for retirementwithdrawals, such an accountwould generate just $3,745 in

before-tax income.

Some do betterThe average balance for

workers age 55 and older who

have contributed continuouslyfor 10 years or more was$233,800, Fidelity said. Evenat that level, a conservativeretiree would only be able tospend about $11,700 in the

first year of retirement.

One positive finding wasan increased willingness byemployees to increase their401k contributions. Fidelitysaid 10 percent of workers

who were surveyed plannedto increase their contribu-tions, the highest level sinceFidelity began tracking therate in 2006. The averagecontribution rate remained at8.2 percent of pay, un-

changed over two years.

The law allows employ-ees to save up to 15 percentof pay, to a maximum of$16,500 per year, with extracontributions of up to $5,500

allowed for those over age 50.

Loans on the r iseAnother survey by the

Investment Company Institutefound that more employeesare taking 401k loans. In2010 some 18.2 percent of

those surveyed took a loan,compared to 16.5 percent the

year before.

Such loans not only re-duce the balance available forretirement but require em-ployees who lose or change

jobs to immediately pay them

back or face income taxesand penalties for early with-

drawals.

The average worker hasbecome more pessimisticabout his chances for a com-fortable retirement, found anannual survey by the Employ-ee Benefit Research Institute,a nonprofit research organiza-

tion in Washington, D.C.

(Continued on page 2)

AM ERI C A N S ARE S T RU G G L I N G TO ACCUMULATE RET I REM EN T SAVINGS

Points of interest:

The average 401k accountbalance is just $74,900.

Those over 55 who saveregularly have averagebalances of $233,800.

The average 401k contri-bution rate has remainedstagnant at 8.2 percent ofpay.

Workers can save up to 15percent of pay, with extraallowed for those 50 andolder.

More workers than even before are worried that their savings will run outwhen they are retired.

Market timers andfrequent traders shoulduse rules to gain selfcontrol.

2

A new study of profes-sional money managersisnt encouraging.

3

The best shoppers forcredit cards, ETF

flows indicate investormistakes, and more.

3

A new survey of teensand money reveals thechallenges they face.

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I N S I D E T H I S I S S U E :

July 2011

INVESTMENT UPDATE


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Investment Update

Twenty-seven percent of work-ers say they are not at allconfident in their ability toretire, the highest negativelevel in 21 years of the organi-zations Retirement Confi-

dence Survey (RCS).

The EBRI survey alsofound that a third of workershad to dip into their savings in2010 to pay for basic expens-

es.

What is enough?The most disturbing find-

ing of all might be that 42

(Continued from page 1)

percent of those in theEBRI survey said they de-

termined their retirementneeds by guessing at how

much to accumulate.

Although there is nosubstitute to a well

thought-out retirementplan, one quick way toestimate how much tosave involves looking atyour current income, sub-

tracting your potential So-cial Security benefit, and

then aiming to save enough

money to make up the gap.

You should aim to saveenough money so that a 5

percent withdrawal from sav-ings will be enough to fill thegap between your Social Se-

curity benefit and your de-sired retirement income.

Men participating in theBarclays study reported feel-ing more composed thanwomen and less subject tostress when making tradingdecisions. Women reported

being more likely to use selfcontrol strategies to avoid

financial mistakes.

The study also found thatage doesindeedbring wis-

dom.

Olderinvestorsreportedbeing morecalm, satis-fied, andaccepting

than theiryoungercounter-parts. Old-er investors were less likely toendorse frequent trading.They were more likely to prac-

tice a buy-and-hold strategy,

Barclays said.

Davies said thesetendencies benefit older in-vestors. If one starts from a

The wealthy are humantoothey make the commonmistake of trading in the fi-nancial markets too much,even as many realize they are

trading excessively, says Bar-

clays Wealth, a division ofBarclays bank.

It surveyed 2,000wealthy investors (those witha net worth over $1 million) ofall ages and found that 40percent believe they must

trade frequently to do well in

the markets.

But in a surprising find-ing, half of those who tradefrequently said they believed

they traded too much.

There is a substantial

proportion who are troubledby their behavior. This is anovel finding for me, Greg B.

Davies, head of behavioraland quantitative finance atBarclays, told The New York

Times.

Men vs . womenBarclays found that men

were more likely to trade toomuch than were women. Thisfinding replicates that of sev-

eral other investor studies.

naturally higher level of satis-faction, you will be less anx-ious, less likely to trade emo-

tionally, less likely to harm yourperformance over time and lesslikely to need assistance with

self-control, he said. Try control strategies

Barclays offered some tipson strategies to help investors

control them-

selves.

Investors candeliberately avoidcurrent infor-mation abouthow the marketor their portfoliosare doing in or-der to stick to along-term strate-

gy.

They can userules to makebetter decisions,

such as deciding to spend onlyout of income and not out of

capital.

Barclays recommendsdelegating financial decisions

to others and says you can dothat by having an investment

advisor manage your portfolio.

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US E THE FI V E PERC EN T RULE T O FI G U RE O UT HOWMUCH T O SAVE

H O WT O AVOID F R E Q U E N T T R A D I N G M I S T A K E S

The study also found

that age does indeedbring wisdom.

Workers guess at how much to save.

Frequent stock traders are often un-happy with their results. The use ofsimple trading rules can help you limitthe damage from your decisions.


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Investment Update

Many investors want tobelieve that they can find an

investment manager who,based on his or her past per-formance, can continue tobeat the markets and offer

superior returns.

Studies of the perfor-mance of mutual fund manag-ers have found little evidenceof the persistence of goodperformance or of excess skillamong mutual fund manag-

ers.

Now three finance pro-fessors have done a detailedstudy of institutional invest-ment managers who investfor public and private retire-ment plans, endowments,

foundations, and unions.

Their results indicate thatas a group these managersalso provide little evidence ofskill or performance persis-

tence.

Less pressureThis is a significant find-

ing because some have ar-gued that mutual fund man-agers have a marketing hand-

icapthey have to competewith other managers in a pub-

lic marketplace whereeveryones returns are

open knowledge, andthey may have to takeextra risks in order todistinguish themselves

from the crowd.

Institutional moneymanagers usually an-swer to sophisticatedinvestment committeeswho have long-termviews of the marketsand may tend to pres-sure the managers less

to make sudden

moves.

A big sampleIn a paper slated for pub-

lication in The Journal of Fi-nance, Jeffrey A. Busse andAmit Goyal of Emory Universityand Sunil Wahal of ArizonaState University looked at4,617 institutional invest-ment funds run by 1,448management firms. Theirstudy corrected for survivor-ship bias among the manag-ers over the period from 1991

through 2008.

Before fees, we findlittle evidence of superiorperformance, either in aggre-

gate or on average, they saidin the paper, titledPerformance and Persis-

tence in Institutional Invest-

ment Management.

They said that once amanagers style of investing

and evidence of stock mo-mentum are factored out, itappears managers offer no

extra performance.

One logical conclusion

might be that plan sponsorsshould engage in entirelypassive asset management,

the authors wrote.

it cards before selecting the

best, FINRA said.

The ETF indicatorYet another study has

found that the actions of aver-age investors are a reverse

indicator of future markettrends.

TrimTabs Investment Re-search measured theflows of money into stock-oriented Exchange TradedFunds (ETFs). We ob-

served that equity pricestend to fall after equity ex-change-traded funds rake inlarge sums of money, Trim-

Tabs reported. It noted that

The best credit cardshoppers in the United Stateslive in Rhode Island andWashington, D.C., found anational survey by FINRA, theregulator of stock brokerages

and brokers.About 41 percent of

Rhode Island residentswho were surveyed said

they shopped among cred-it cards for the best termsand rates, compared to anational average of 32

percent who shopped around.

Missouri and North Caro-lina had the lowest number ofresidents who compared cred-

ETFs are used primarily by

retail investors and day trad-ersthe least informed andmost emotional market partici-

pants.

Elder care costs

The financial toll on eldercare providers who are 50 orolder averages $303,880 perperson in lost wages, pensionsand Social Security benefitsdue to leaving the work forceearly to care for a parent, showstatistics compiled by the Uni-

versity of Michigan.

For women, the cost ishigher at $324,044, the Univer-

sitys study found.

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EVEN THE B E S T I N V E S T M E N T M A N A G E R S C A N N O T O U T P E R F O R M THE M A R K E T S

As a group these

managers also provide

little evidence of skill or

performance persistence.

Investment managers at institutional fundsdo not outperform the market on average.

CARD S H O P P E R S , E T F I N D I C A T O R , & M O R E


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American teenagershave a lot of interest infinances and money, butlack basic expertise nec-essary to succeed in thefinancial world, a newsurvey by Charles Schwab

& Co. found.

The San-Franciscobased financial firms

2011 Teens & Moneysurvey of kids age 16 to18 also found that teenswere affected both finan-cially and emotionally by

the recession.

Some 64 percent saidthey are now more grateful forwhat they have while 58 per-cent said they are less likely

to ask for things they want.

It may warm the heartsof some parents to learn that56 percent have more appre-ciation for how hard their

parents work.

Teens also feel theirmoney issues are different

$73,000, while the averagesalary they expect whenestablished in their careerwas $150,000. While they

think their parents average

annual income to be$70,000, the medianhousehold income accord-ing to the U.S. Census Bu-

reau is $50,000.

Schwabs annual survey

revealed that generalknowledge about financialmatters seems to havedeclined between 2007and 2011. Back in 2007

some 67 percent knew how towrite a check; this year thenumber dropped to 60 per-

cent.

Fifty-one percent saidthey knew how to balance acheckbook in 2007 compared

to 35 percent today. Forty-three percent knew how cred-it card interest and feesworked in 2007; the numberin 2011 had dropped to just

32 percent.

AM E R I C A N TEENS HAVE A LO T TO L EARN ABOUT THEIRFINANC ES

Teenagers say it is hard to get a job but theyexpect big salaries.

than those faced by their par-

ents or grandparents. Seventy-nine percent said college ismuch more expensive now,

while 68 percent acknowledgedthe pressure to have computers,

cell phones, and clothes.

Fifty-seven percent said it is

harder for them to get a job.

Salary expectations forthose who intend to work were alittle grandiose. The averageexpected starting salary was

Investment Update is publishedmonthly by OBS FinancialServices, Inc. 2011 All rightsreserved. Information has beenobtained from sources believed

to be reliable, but its accuracyand completeness, and theopinions based thereon, are notguaranteed and no responsibilityis assumed for errors andomissions. Nothing in thispublication should be deemedas individual investment advice.Consult your personal financial

adviser and investmentprospectus before making aninvestment decision. Anyperformance data publishedherein are not predictive offuture performance. Investorsshould always be aware thatpast performance has not beenshown to predict the future. If indoubt about the tax or legalconsequences of an investmentdecision it is best to consult aqualified expert. OBS FinancialServices, Inc. is a Registered

Investment Advisor.

John Stadsvold

SVP & Trust Manager

70 Crossroads Plaza

OFallon, MO 63368

636.379.3426

Karen Sutor

Vice President & Trust Officer

515 Broadway

Hannibal, MO 63401

573.221.6425 Ext. 376

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F&M Bank - Economic News July 2011