April 30, 2016
Retirement savers get good news
Those folks saving for retirement are upping their game: A record 13.6 percent of 401(k) participants raised their savings rate during the first quarter this year. Overall, employee contributions, combined with employer matching funds and profit sharing, rose 12.7 percent to reach another record.
Over the past year (as of April 30th), adjusted for dividends and splits:
1. The SPDR S&P 500 ETF (SPY) is up 1.1%.
2. The iShares 1-3 Year Treasury Bond Fund (SHY) is up 0.7%.
3. The iShares 20+ Year Treasury Bond Fund (TLT) is up 5.3%.
Retirement savers were repeatedly told:
1. Buy stocks as there is no alternative. If you absolutely need to earn 10% per year and you know that you cannot earn it in fixed income, then you must swing for the fences to have any hope at all.
2. Although past performance is not necessarily indicative of future performance, past performance shows stocks go up 10% per year, on average. You can therefore expect stocks to go up 10% per year.
3. If one must own fixed income, then stick to the shorter end of the curve due to the rising interest rate environment. Do not lock in long-term yields on the off chance that we get stuck in an ultra-low interest rate environment longer than expected.
In hindsight, in order to compensate for the lousy returns and the lousy advice, retirement savers have been forced to up their game in order for their retirement asset goals to be met.
This isn't just good news for retirement savers. It's fantastic news! Woohoo! Get out the party hats!
As a side note, if people really are increasing their savings rates to compensate for lousy returns, then who will be doing the discretionary consuming in our consumer driven economy?
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