401(k) Investments Keep Young Workers' Money In The Stock Market Despite Poor Performance

People born in the 1980s are more into the stock market than one might think, according to one new study. While analysts have worried that the volatile market of the last decade, with the terrible downturns in 2000 and 2008, would sour Gen Y on stocks, the opposite had occurred. The number of participants in their 20s who had 80 percent or more of their 401(k) money in stocks grew from 55.3 percent to more than 60 percent between 2000 and 2010, according to the study, which was conducted by the Investment Company Institute and Employee Benefit Research Institute and looked at the accounts of more than 23 million 401(k) participants.

It's not just those in their 20s who have said yes in greater numbers to equities over the past decade. The survey also found that as of 2010, more Americans overall had some money in the stock market as part of their 401(k) retirement account than they did in 2000.

How could something that's performed so terribly stay so popular? Blame the 401(k) itself. Starting in 2006 with the Pension Protection Act, companies had more incentive to auto-enroll employees in these retirement funds. The result: more money in the market. What's more, auto enrollments typically move money into target-date funds that weigh younger investors more heavily in stocks.

"Growing use of target-date funds appears to be helping to keep younger 401(k) participated in balanced portfolios, with equity exposure to help their assets grow over the long term," Sarah Holden, senior director of retirement and investor research for ICI, said in a statement. "While our surveys and others have shown that investors are less willing to take on stock market risk, 401(k) plan features are countering that trend for plan participants."

Homeownership, another long-term investment for individuals thinking about ways to save for retirement, has also been on the decline. Since the overinflated high of around 70 percent in the mid-2000s, the home ownership rate has been steadily declining, and is sitting around 66 percent today. Instead of keeping one's savings in one's home, investors have to count on other vehicles, like the markets.

The study also showed that one in four people had 80 percent or more of their money tied up in stocks. While that percentage has declined from 54.1 percent since 2000, it is still a significant portion of investors. Meanwhile, the group holding between 60 and 80 percent in stocks grew more than 10 percent to nearly a quarter of the participants surveyed.

Comments

[sandiegoconservative]

03:11 PM on 01/03/2012

If you invest wisely and in solid portfolios, I don't see why there is such a panic. Just be sure to diversity. Stocks, bonds, gold and other assets including real estate if you can. Where is the fire? Since 2008 when everything went into the toilet I am still earning 8+% on conservative investments.

The problems occur when someone takes too big of a risk on any one form of investment. Or, if they just sit back and let someone else manage their money without being involved and informed.

All this talk about things being rigged and not in your favor, I just don't get it. I have in-laws living off their 401k's and investments and doing quite well. I have a grandfather doing the same. I have one parent who is living off of their 401k and when combined with my other parent's partial income, are also doing quite well. Aunts and uncles and neighbors- all did the same thing and are just fine. And only one person out of all of them has any sort of a pension from their job.

I truly believe that when I am old enough to retire, I will be told I will receive little to nothing from social security (if it is even around), because I was smart and invested. I believe social security will only be left for those who did not save at all in 30 years when I retire. Therefore, I need to plan for that now.

[FilthyHarry]

01:27 PM on 01/03/2012

I would think the biggest bar to investing in the stock markets isn't its performance but that after the events of 2008 and all the events related since then is the realization that the game is rigged, and not in the people's favor.

[raphaelbonee]

03:45 AM on 01/03/2012

The wonder isn't why generation y invest in stocks. The wonder is why anyone does.

Assuming the stock pays no dividend, after the IPO a company has nothing to do with a stock unless it goes bankrupt or buys back stock for its own reasons(1).

In thecase of bankruptcy stock holders getpaid after loans bonds and premium stock holders. This means theexact value of the stock isa known quantity. The value is market cap-loans-bonds-premium / outstanding shares. This usually comes outtobe some twenty tothirty percent of that brand new stock issue. That's right like anew car you've driven off the show room floor you've not even had achance todirty the ashtray and inreal dollars your stock is worth less than you paid for it.

But keep smiling all is not lost. There are bigger fools than you out there.

The secondary market determines themarket value of the stock. That's right since not everyone knows the stock is dissociated with the companies performance, since noteveryone knows the company itself will never pay you anickel of those earnings it generated (see 1), atthis point you can sell the stock asifit is.

You just point to the company and cite EPS and P/E ratios asif the value of that piece of paper goes up or down with the companies fortune. If enough people believe you it does and so the bigger fool is found ... someone willing to pay more than what your piece of paper is worth.

[frank1946]

01:08 AM on 01/03/2012

Equities will only grow if Re-Inflation occurs...................could take many years before signs of
Demand appear.

Will take a major change in Politics in Whitehouse and Congress, DEMS have soured the
whole Investment World.

Or maybe an Internal Devaluation of the Dollar $$$ by about 30 %, in two steps ?

[local21]

10:19 AM on 01/02/2012

If I was a young worker today I would be maxing out my 401K every year and basically buy and hold.

[spkninglsh]

09:46 PM on 01/01/2012

I hear they're investing heavily in Soylent Green.

[KarmaPatrol]

08:28 PM on 01/01/2012

The auto-enrollment and 10-year window that was looked at might explain the results; wonder what looking at a 5 year window like 2004-2009 would show in terms of redemptions?

[pinetrale]

03:43 PM on 01/01/2012

While there was a period of stock outperformance in the 1990's that is over now and frankly the total you will end up in your 401k in the current market is what you put in, assuming we dont' get a deeper bear market. That is sad really. Then taxes will lower what you can pull out by whatever your bracket is. Frankly 10-15 years ago you would make more just putting it in a tax free money market and some muni's without all the restrictions or eventual taxation. Things have so changed.

[Dana1982]

03:03 PM on 01/01/2012

People need to get out of stocks and spend their money now as everyone knows that social security is going to be their to take care of them when they retire. 401k's just are a rip off that makes wall street bankers rich and are not in the best interest of the common man, unlike social security.

[noahmarder]

10:45 PM on 01/01/2012

Social security is a Ponzi scheme. The Government purposely underestimates inflation so that they can pay less on social security, The Republicans would like to index "Medicare" vouchers to the same bogus rate. Meanwhile, social security is funded through taxes that depend on income, which will track inflation more closely over the long term than will the government's reported rate. For a young adult today, social security is little more than an empty promise which we are forced to accept at face value (by paying taxes to it).

[kamact]

02:20 AM on 01/01/2012

Well the TBTF banksters managed to implode the market in late 2008,...creating a buying opportunity,....assuming you had any money,...and imaging the Federal Reserve giving $ trillions to these banksters at 0%,...What massive corruption,...

[FOXYROSE]

02:04 PM on 12/31/2011

There really isn't any other place to put your money to try and beat inflation. Last yr I made 25% on my portfolio, this year only about 5% - still better than what the bank pays. Hopefully, this year will be better. I have dividend paying stocks and I reinvest those dividends. Sometimes I just buy and sell and I may go back to that in 2012.

[luckyone77]

01:38 PM on 12/31/2011

because they have no hope of getting a pension and no other way to save for retirement?

[Karma2U]

09:58 PM on 01/02/2012

Yes. and because gambling can be an addiction.

[kidjudas]

11:32 AM on 12/31/2011

gwarsh, I can't imagine why people would invest in stocks when banks are paying a heady 1.5% on 5 year CDs.

[Peter Combs]

11:32 PM on 12/30/2011

The market has some wild fluctuations...if you were in the market in the winter of 2008 and did nothing throughout the entire fiasco, today you be pretty much whole again or ahead and well ahead of where you were in 2000...

[josh e garber]

08:02 PM on 12/30/2011

for the best picks http://bigfinances.com/Stocks