Friday, May 18, 2012

Don't Overestimate the Value of Survey Data

I saw some interesting data this morning. According to their quarterly Retirement Pulse Survey, Charles Schwab found that 35% of investors consider protecting their retirement assets more important than increasing them. Conversely, 8% believe that increasing them is more important than protecting them. What about the other 57%?

Unfortunately, the write-up that I saw has only sparse data (not a Schwab write-up, so I am specifically not placing blame on Schwab).

In any event, the headline from the Plan Sponsor News Dash was "Americans Most Want to Protect Retirement Assets From Risk." While that may be true, the data is not conclusive to this. 57% gave some other answer and I don't know what those answers are.

One can easily rationalize. Older plan participants probably fall into 3 categories:

  • Those who feel their assets are or will be sufficient to retire
  • Those who think they are close to where they will have sufficient assets to retire
  • Those who either think or know that their assets will not be sufficient to retire
That final group needs to increase their assets. There are exactly two ways to do this: save more and get better returns. Being risk-averse just won't cut it. This is not me advising them, this is common sense. 

The News Dash write-up suggests to me that younger plan participants are more risk-averse. Could this be because they have not seen the big market booms in their investing lifetimes. As an investor, even in good times, the 2000s have not been pleasant. While there have been lots of good months, there have been lots of bad months. At this point in my life, volatility is not my friend.

So, going back to the data, taken in chunks, it could be misleading. I would hope that without closer review that plan sponsors don't put too much credence in the headline.

However, would it not be worth it for a large plan sponsor to learn the attitudes of its own plan participants? Are they risk-averse? Or, are they risk-takers? Shouldn't the fund lineup be commensurate with the goals of plan participants? If it's stability they want, shouldn't the plan's Committee have a lineup with a higher propensity of lower volatility options? Conversely, if the company has a bunch of natural risk takers, is it not appropriate that the find lineup be reflective of that?

Perhaps? What is the role of the Committee? Ultimately, they are to act in the best interests of plan participants. Nobody knows exactly what that means. But, it seems to me that meeting the needs or perceived needs of plan participants is not contrary to that role.

So, don't overestimate the value of broadly available data. I suggest you collect your own.

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