25 June 2019

Retirement Investors Flock Back to Stocks

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Retirement investors are putting more money into stocks than they have since markets were slammed by the financial crisis six years ago.

Stocks accounted for 67% of employees' new contributions into retirement portfolios in March, according to the most-recent data from Aon Hewitt, which tracks 401(k) data for 1.3 million people at large corporations.

That is the highest percentage since March 2008, when stocks were teetering under the weight of mounting mortgage defaults, and compares with 56% in March 2009, when the market hit bottom.

The rising deposits, combined with the powerful bull market that took the Dow Jones Industrial Average to a record high on Wednesday, have left retirement savers with their biggest exposure to stocks in more than six years. In March, stocks made up 66% of the assets in the 401(k)s surveyed by Aon Hewitt, up from 48% in February 2009.

The stock crash deeply scarred investors, and even after the bull market began, they stuck with low-yielding bonds for the better part of three years.

It took last year's rally—with the S&P 500 soaring 32%, including dividends—and signs of an improving economy to coax them back to stocks in significant numbers.

"What cash I have, I'm going to use to buy more if the market dips," said Roy Chastain, a 68-year-old retiree in Sacramento, Calif., who put an extra 10% of his retirement account into stocks in September, bringing his total stock allocation to 80%.

Mr. Chastain, who had put all his retirement assets into cash in May 2008, has gradually rebuilt his stockholdings.

Individual investors, notorious for mistiming the market, didn't fare well in the financial downturn. At the stock market's peak in October 2007, investors put 69% of new 401(k) contributions into stocks, according to Aon Hewitt. The S&P 500 went on to lose 57% of its value by March 2009.

Some financial advisers now worry that retirement investors could be late to the game, pouring into stocks after much of the easy gains have already been had. This year, the S&P 500 is 1.9% higher, but it is 0.4% off its record high hit at the beginning of April. By comparison, in the first four months of last year, the S&P 500 was 11% higher.

Meanwhile, large investors such as pension funds, banks and insurance companies are showing less appetite for risk. Demand for shares of newly public companies has weakened, and utilities, considered safe when economic growth isn't robust, are the best-performing group this year.

Some individual investors may have largely forgotten the pain from the 2008 downturn, which caused many of them to panic and sell at market lows.

"People say that they're risk-tolerant as long as they're making money, but once they're losing money, they discover they weren't so risk-tolerant after all and sell stocks," said Wade Pfau, a professor of retirement income at the American College in Bryn Mawr, Pa.

Click here for the full article in the Wall Street Journal.

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