SigFig Insights report finds stark wealth inequality even among those rich enough to invest

It’s probably not news to any of us that wealth is not equally distributed. In fact, it’s highly skewed—but just how lopsided is it? For this quarter’s SigFig Insights report, the data team investigated the profile and behaviors of the most wealthy of investors and the least wealthy of investors.  

According to findings, investors in the wealthiest quartile have on average 348 times more wealth than the average investor in the least wealthy quartile.

average wealth

Other key comparisons and findings include:

  • Top 50 percent versus bottom 50 percent: When comparing the top 50 percent of investors with the bottom 50 percent of investors, the top half owns 97 percent of the total wealth, with the bottom half owning the remaining 3 percent.
  • Top 25 percent versus bottom 25 percent: On average, the bottom 25 percent of investors owns $4,600 in assets, while the top 25 percent owns $1.6 million.
  • Top 1 percent versus median investor: On average, the top 1 percent of investors owns $12 million in assets, which is 145 times greater than the assets owned by the median investor ($83,000).

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Not only do we see a gap in amount of wealth, the report also reveals differences in investment behavior. The wealthy, top 25 percent of investors tends to churn their portfolio less, pay lower fees, and handle market volatility better—all of which are factors that lead this group of investors to achieve higher portfolio performance. The top 25 percent of investors saw returns that were more than two times higher than the returns of the bottom 25 percent of investors.

Even among those with the means to invest, we see a surprisingly unequal balance of wealth and differences in investing behavior. While we may not know the exact reasons behind this divide, we do see that wealthier investors tend to practice sounder investment strategies, like avoiding unnecessary fees and staying put even when the market dips—strategies that can be employed by any investor.

You can read the full report here.

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About the SigFig Insights Report

The analysis in this report is based on data aggregated and anonymized from 330,000 investors who have synced their portfolios with SigFig. Results are net of all management fees and expenses unless otherwise noted. Performance data includes reinvestment of dividends and interest unless otherwise noted. Past performance is not indicative of future returns. Direct comparisons between performance and equity market indices are not without complications. The indices may be unmanaged, may be market weighted, and unlike advisory clients, indices do not incur fees and expenses. Technical details are available upon request.
SigFig Insights
Understand risk, maximize returns, minimize fees.
SigFig will show you how.

Volatility visualized, Barry Ritholtz challenges the All-Weather Portfolio, and how different countries spend their household budgets

Economist - volatility chart

1. The Economist charts the recent bout of volatility across global markets, and shares a takeaway for everyday investors:

The typical retail investor, making a monthly investment into his or her 401 (k), ought not to worry about a violent one-day move nor should a pension fund or an endowment. One would need to see a much more prolonged period of volatility to make investors reconsider the risk premium they expect.

2. With volatility on the mind, investors may be tempted by products such as the one championed by Tony Robbins and his “All-Weather Portfolio”. Barry Ritholtz warns that the All-Weather Portfolio suffers from recency bias, offers an “All-Century Portfolio”, and wagers $100,000 that his will outperform come 2035. He also reminds us:

Investors interested in this sort of asset allocation can access this portfolio numerous ways. You can do it yourself for free. It requires a bit of work and you need to do a rebalancing once or twice a year. But it’s cheap and easy and will do better than 90 percent of what Wall Street has for sale.
 
The most challenging part of this is you. Your emotions, your lack of discipline, your ability to stick to a tried-and-true methodology and not get distracted by something shinier.

For more in this vein, he shares Jason Zweig’s Rules for Investing.

3. How do different countries spend their money? The Economist shares a graphic. Who knew the United States spends nearly 21% of household budgets on Health Care, the highest in the world?

 
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SigFig Insights
Understand risk, maximize returns, minimize fees.
SigFig will show you how.

Tyler Cowen on the Fed, everyday investors beating the pros, and what if Trump just invested in the S&P 500

1. Tyler Cowen on whether the Fed should tighten.

2. Barry Ritholtz writes that in the late August market correction mom and pop investors beat hedge funds and high-frequency traders.

3. Vox shares some fascinating maps from Google Trends based on worldwide stock index searches.

4. Michael Hiltzik at the LA Times talks about how Wall Street’s “can’t miss investment of the year” has been quite a miss.

5. If you’ve ever wondered how much Donald Trump would have made had he simply invested his inheritance in an S&P 500 index fund — and admit it, you have — Vox has the answer.

 
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SigFig Insights
Understand risk, maximize returns, minimize fees.
SigFig will show you how.

A little reading material for a volatile market week

What a week:

1. CNBC shared SigFig data on how timing the market or panicking can cost investors:

Investors who try to time market highs and lows almost always hurt their performance over time. An analysis of investor behavior from SigFig, an investment planning and tracking firm, found that during the market correction in October 2014 roughly one in five investors reduced their exposure to equities, mutual funds and ETFs, with 0.6 percent selling 90 percent or more. That may have seemed smart at the time, but SigFig’s analysis found that the more people sold, the worse their investments performed.
 
“Those who appeared to panic the most—for example, those who trimmed their holdings by 90 percent or more—had the worst 12-month-trailing performance of all groups,” the researchers concluded. Their portfolios delivered a trailing 12-month return of -19.3 percent as of Aug. 21, compared with -3.7 percent for the people who did nothing during that October correction.

2. At SigFig, we believe that good investing means following a diversified strategy with discipline and long-term focus.

Along similar lines, Ron Lieber of the New York Times writes:

The impulse when the stock market falls hard for a few days in a row is to do something. Anything. Our life savings are often on the line, after all.
 
But that’s just the thing: Stocks are most useful for long-term goals. So unless those goals have changed in the last few days, it probably doesn’t make much sense to overhaul an investment strategy based on a blip of market activity.
 
So pour yourself a drink, or sit down with a pint of ice cream, and consider the following six things.

Here are his six things.

Lieber also profiles some pension fund managers and the folly of trying to beat the market, and a perhaps unusual method they use to stay on course:

On days like Thursday and Friday, when the stock market is declining, it’s hard to sit calmly and do nothing, especially when commentators are yelling on television. So when the two men are feeling itchy, they make for the hills, literally, running on trails near Reno for 10 or 15 miles at a time.
 
They can’t trade while they are in motion, but that’s probably a good thing. “We spend a lot of time up there talking each other out of stuff,” Mr. Lambert said. “In investing, the answer 90 percent of the time is to do nothing.”

3. Ben Casselman of fivethirtyeight.com tells us when to pay attention to the market and when not to:

We don’t write much about financial markets here at FiveThirtyEight. That’s intentional. Markets are important, but there’s already lots of good coverage out there. There’s also lots of really bad coverage — the deluge of minute-by-minute market data makes it incredibly tempting to see signals in what is really just noise. We don’t follow every up and down of the market because, unless you’re a trader, it just doesn’t matter.
 
But there are times when even non-traders should pay attention to the markets, either because they’re so bad they’re affecting the rest of the economy (think Lehman Brothers in 2008), or because they’re sending a signal about bad news around the corner. How do you know when to do that? You can’t, at least not perfectly. But by following a few simple guidelines, you can avoid getting caught up in the hype and stay focused on what really matters.

4. Published August 19th, James Osborne’s piece on “the worst question of them all” happened to be quite timely:

It’s summer, or at least it was recently until our oldest went back to preschool. Summer means family gatherings and kid’s birthday parties and BBQs and a pretty jammed social calendar for us. I try pretty hard to avoid the “professional” talk at social events, but I’m never 100% successful. Inevitably, somebody asks the question. I really hate the question. You know the question.
 
“So what do you think of the market right now?”
 
This is the part where I try really hard not to let out an exasperated sigh and shrug my shoulders. But first I’ll break down what drives me nuts.

5. And now, for something completely different.

 
 
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SigFig Insights
Understand risk, maximize returns, minimize fees.
SigFig will show you how.

Lobbyists fight the fiduciary standard, Barry Ritholtz describes every FinTV interview, and we discuss setting investing goals

1. At SigFig we are squarely behind the Department of Labor’s effort to expand the fiduciary standard to all financial advisors. Investors should have no doubt that their advisor is putting their — the clients’ — best interests above his or her own. Not surprisingly, financial industry lobbyists are not going down without a fight:

The new [advertising] campaign is sponsored by Americans to Protect Family Security, a front for the life insurance and financial advisory industries. Its target is a proposed new Department of Labor regulation to simply require that the sellers of annuities, life insurance, IRAs, 401(k) investments and other such retirement products place their clients’ interest first… The whole point is that millions of customers can’t tell if they should trust their advisors, because the latter’s conflicts of interest are often well-hidden. When one hears the characters in the industry’s college-parents commercial worrying that they’ll get “no more help from Anne,” their trusted advisor, one feels the urge to knock some sense into their heads.
 
That great advice you’re getting from “Anne” may do more to line her pockets than your own–and you wouldn’t even know. If the Department of Labor regulations go through, then you’ll know.

2. Barry Ritholtz shares a terrific articulation on what it means to be an “Alpha” or a “Beta investor. Don’t miss his cartoon of nearly every TV finance interview.:

So Alpha is asked where the Dow will be in a year, and he responds:
 
“Our view is that the economy in the U.S. continues to _______, and we foresee _______ problems overseas ______. China is _______, and that has ramifications for the Pacific Rim’s ______. Greece is ______ in Europe. The commodity complex is causing _____ for emerging markets. But many sectors of the U.S. economy remain _______, and some sectors overseas are still _______. The valuation issue continues to be _____, and that means _____ for investors. That has ramifications for corporate profits that will be ______. We think the economy is going to do ______, and you know that means inflation will be _____, which will force interest rates to ______. Under these conditions, the sectors most likely to benefit from this are ______, ______ and ______. The companies best positioned to take advantage of this are ____, ____ and ____. Based on all that, we especially recommend an overweight allocation to ____, ____ and ____. Thus, we believe the Dow will be at ______ next year.”
 
You can turn on FinTV any day of the week and hear some variation of that discussion.

3. We shared a piece on US News on setting goals and following through:

Setting goals and managing investment accounts pegged to each goal separately will likely protect you from your human self and the inclination to react emotionally — not necessarily appropriately — to market events. It might, for example, help you stay on course rather than panic and sell out if the market drops and your shorter-term savings are invested in the markets, says Aaron Gubin, head of research and wealth management at San Francisco investment management firm SigFig.

SigFig Insights
Understand risk, maximize returns, minimize fees.
SigFig will show you how.