America's Retirees Are Investing More Like 30-Year-Olds

[question everything]

Older Americans keep rolling the dice in the stock market, ignoring the conventional wisdom to protect their nest eggs by shifting more of their investments to bonds.

Nearly half of Vanguard 401(k) investors actively managing their money and over age 55 held more than 70% of their portfolios in stocks. In 2011, 38% did so. At Fidelity Investments, nearly four in 10 investors ages 65 to 69 hold about two-thirds or more of their portfolios in stocks. And it isn’t just baby boomers. In taxable brokerage accounts at Vanguard, one-fifth of investors 85 or older have nearly all their money in stocks, up from 16% in 2012. The same is true of almost a quarter of those ages 75 to 84.

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Many older investors remain bullish on stocks for one simple reason: returns. Since 1982, the S&P 500 has returned 10.1% a year, on average. That is significantly more than the index’s long-term average annual return of 7.4% a year since 1928, according to Dow Jones Market Data.

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As the beneficiaries of high stock-market returns, baby boomers tend to report a greater willingness to take financial risks than those who lived through the Great Depression, according to research by Ulrike Malmendier, a professor of economics and finance at the University of California, Berkeley, and Stefan Nagel, a professor of finance at the University of Chicago. In contrast to younger Americans, boomers are also more likely to take a do-it-yourself approach to managing their money. Among baby boomers with 401(k) accounts at Fidelity Investments, 53% pick their own investments, compared with 42% in Generation X and 25% of millennials.

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