Many retirement savers prioritize safety over potentially higher returns when making investment decisions. A recent survey conducted by the online financial planning platform Boldin found that a substantial majority of its users expressed a strong aversion to incorporating alternative assets such as private equity and cryptocurrency into their retirement accounts.
Approximately 80% of Boldin’s respondents indicated they would avoid such investments entirely or limit their exposure to a maximum of 5% of their portfolio. This contrasts sharply with other studies suggesting significantly higher interest in these alternative assets among retirement plan participants.
These findings highlight a considerable gap between the views of retirement industry players and individual savers. While some industry surveys have indicated substantial interest in offering alternative investments in 401(k) plans, Boldin’s data suggests a widespread reluctance among average investors.
This discrepancy may be attributed to several factors. Stephen Chen, CEO of Boldin, noted that many investors, particularly those nearing retirement, are more concerned with preserving their savings than pursuing potentially higher, albeit riskier, returns. The fear of substantial losses outweighs the potential for significant gains for many.
Legal concerns also play a role. According to Kevin Walsh, principal at Groom Law Group, plan sponsors face potential legal challenges regardless of their decisions regarding alternative investments. This uncertainty has dampened enthusiasm for introducing these assets into 401(k) plans.
The lack of liquidity associated with private equity is another significant concern. These investments are not readily tradable like stocks or mutual funds, making it difficult for investors to access their funds quickly if needed. While experts like David O’Meara, a senior director at WTW, argue that this illiquidity can be managed through careful cash flow planning, the perception of limited liquidity remains a significant barrier for many investors.
Concerns about the transparency of valuations and the potential for high fees further contribute to investor hesitancy. The uncertainty surrounding returns and the added expense associated with these investments make them less appealing to risk-averse savers.
Deb Boyden, who presented the Schroders Retirement Survey, emphasized the importance of investor education in addressing these concerns. She suggested that clearer explanations of the mechanics of these investments and realistic expectations could increase investor participation.
However, Boldin’s findings suggest that investor education alone may not be sufficient to overcome the inherent risk aversion of many retirement savers. The decision to invest in alternative assets is not solely a matter of knowledge but also a reflection of individual risk tolerance and capacity.
Chen further highlighted that many investors have learned from past market downturns and are more cautious in their investment approaches. Their experience has reinforced the importance of preserving capital, even if it means foregoing potentially higher returns. The lack of need for additional risk is a key factor in their decision-making. This cautious approach reflects the reality that many individuals prioritize security over potentially higher returns when it comes to their retirement savings.
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