For Retirement Investing, Putting Customers First Is Now the Law

Tara Siegel Bernard of the New York Times reports:

The Labor Department, after years of battling Wall Street and the insurance industry, issued new regulations on Wednesday that will require financial advisers and brokers handling individual retirement and 401(k) accounts to act in the best interests of their clients.

“The marketing material that I see from many firms is, ‘We put our customers first,’” Thomas E. Perez, the secretary of labor, said in an interview. “This is no longer a marketing slogan. It’s the law.”

As we wrote in April 2015, we are strongly in favor of the Department of Labor’s effort to expand the fiduciary standard to all financial advisors.
Clients should have no doubt that their advisor is placing their best interests ahead of his or her own.
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Revisiting Stock Popularity Across States

What is the most widely owned stock across states? If you guessed Apple, you would be right. In that last survey, we simply ranked each stock by the number of owners in each state.

This time, we wished to understand the relative likelihood of ownership. Compared to the a stock’s ownership nationwide, do investors in a specific state own a particular stock at a higher or lower rate?

Doing so can reveal interesting patterns, e.g.:

  • Massachusetts stockholders are 4X more likely to own Dunkin Donuts than those across the country. Nationwide, 0.5% of investors own DNKN. In Massachusetts, 2% own Dunkin stock.
  • Yelp bubbles up as the most popular stock in California. Although many popular stocks such as TSLA, GOOGL, FB, AAPL, and LNKD are headquartered in the Golden state, they’re also widely owned by investors across the country. Hence, they don’t come up to the top in CA.

Using this metric, we map the top stock in each state.


Indexing ownership to the national average can tell us about home bias. Many of the favorite stocks are headquartered in the respective state: ShakeShack in NY, Under Armour in MD, Las Vegas Sands in NV, Dunkin Donuts in MA, Baker Hughes in TX, Yelp in CA, Tableau in WA, etc. Here is the same map, filtered only to headquarter states.


Below is an interactive map. Hover over the states to see their most popular stocks and their relative popularity. You can download the underlying data as well here.

Note: in our analysis, each stock is owned by at least 100 investors in our data.

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Investor Performance in 2015: a Brief Summary in 6 Charts


eoy1In 2015, most individual investors lost money and underperformed the markets. 72% of investors had negative or zero 12-month return. (In 2014, 30% of investors did.) While the S&P 500 and a 60/40 balanced portfolio* had 12-month returns of 0.4% and -0.3% respectively, the median investor lost 2.6%.


Women investors outperformed men, but not by much. One possible factor could be that men turned over their portfolios 44% more than women.


In general, we consistently observe across all investors that higher portfolio turnover predicts poorer returns.


Portfolio turnover could reflect reacting to short-term volatility in the markets. During the August 2015 correction, investors who reacted the most by selling also had the worst returns.


Returns are net of fees and include dividends. Time period is 12 months ending 12/31/2015.
*For S&P 500, we used total returns from VTI. For 60/40 Balanced, we used VBINX.


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Data Highlights from 2015

Each year, we compile the most interesting trends in investor behavior we observed. For 2015, we share:

  • A survey on performance: in a rough year for markets, how many everyday investors gained or lost money through the year? Did men or women have better returns? What was most correlated with better performance?
  • A look at inequality: across retail investors who use SigFig, how is wealth distributed? Is inequality more or less pronounced among Baby Boomers or Millennials?

Read this year’s report, here.
(2014 is also available.)
We wish our readers a happy 2016.

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Jack Bogle and passive investing, fighting 401(k) fees, and the looming retirement crisis

1. NPR shares a recent interview with Jack Bogle, “the George Washington of investing“:

“We live in this mythical world where we kind of believe the American way is if you try harder, you will do better — that if you pay a professional to do something, it will pay off,” Bogle says. “And these things are true — except in investing!”
That was Bogle’s insight: When you invest, you should own a mix of bonds and stocks. But paying investment managers to pick stocks just doesn’t work, he says. That’s because picking winners is very hard, and paying the guys in the suits is so expensive that it hobbles your ability to make money.

2. Also from NPR, a reminder to find out how much you’re paying for the mutual funds in your 401(k).

“Sixty percent of people don’t know they’re paying any fees at all in their 401(k) plan,” says Laurie Rowley, president of the nonprofit National Association of Retirement Plan Participants. NPR asked her and other experts to explain how people can get their retirement portfolios in good shape.
Rowley says people need to be aware that they are paying fees, and they need to find out how big those fees are. “Fees make a huge, dramatic impact on your total savings nest egg,” Rowley says.
A 2 percent annual fee might sound small, but it eats up half of your earnings over 35 years. Review your plan and pick just a few of the lowest cost funds, Rowley says.

In the same vein, we recently shared our data on mutual fund fees with CNBC.

3. On the rise of automated/robo financial advisors, Meb Faber writes that traditional advisors should not feel threatened but seize the opportunities they provide.

Many advisors have been wringing their hands over the fee compression – how can we compete in a world where asset allocation is a commodity?
The answer is – because asset allocation has always been a commodity.

Since almost every custodian and brokerage will have no cost robo technology for their advisors in the next year or two, advisors should spend as little time as possible on the asset allocation solution, and more and more on their value ads. But that is a beautiful thing! Clients would appreciate more attention, estate planning, insurance, tax management, microbrew tasting events etc etc. Not to mention it would free up advisors to spend more time on prospecting if they so choose.

4. The Economist summarizes sobering research on Americans saving for retirement. The brief version: not enough, and for many, not even close.

Unsurprisingly, the biggest problems face those with no private pension at all: 68% of these Americans are expected to fall short. Those lucky enough to be covered by defined-benefit plans—in which pensions are linked to a worker’s salary—have the least difficulty: only 20% are deemed at risk. Of those in defined-contribution (DC) plans—in which workers receive whatever pension pot they have accumulated by retirement—53% probably will not reach the replacement rate.
The problem is that many people simply do not save enough in a DC pension. The combined contributions of employers and employees average just 11.3% of salary. This will not generate the same level of pension as a typical defined-benefit plan. The CRR found that the average retirement assets of those aged 50-59 were just $110,000 in 2013, slightly lower than in 2010. This balance will improve over time, since DC plans are relatively new, but there is a long way to go. If pensioners take an (inflation-adjusted) 4% a year from their pot, they will need $250,000 just to generate an income of $10,000.

Dilbert, via Barry Ritholtz, has a relevant response.

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Understand risk, maximize returns, minimize fees.
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