Barbell Investors
Is it because I have been spending time in the gym lately that I have barbells on my mind?
Along the spectrum of possibilities, there are many investor personalities. Today I am thinking about the two furthest points on the continuum, like the ends of a barbell.
Smooth Operators
Readers of a certain, ahem, age will get the Sade reference and know the type instantly. (For the rest, I pity you; you have no idea what you have missed.) These are the wannabe finance bros who guzzle Tik Tok videos about the awesome opportunities in universal indexed life insurance and leveraged ETFs like so many bottles of hard kombucha. And yet they haven’t looked at their 401(k) since accepting their employer’s measly 4% default contribution rate.
They have all the time in the world to research “How to Reach FI by House-hacking” and no time at all to understand the basics of asset allocation, diversification, and, most importantly of all, what constitutes an adequate contribution rate. (Side note: When did having a roommate or a tenant become “house-hacking?”)
Don’t Look at Me; I’m Not an Investor
These are the well-meaning salaried employees who signed all of their new hire HR paperwork on Day One and never once looked back. And if their employer kindly defaulted them into a target date fund with a matching contribution, I do not (very) harshly judge their inattention. And if there is an auto-escalation of contributions, it may all be for the best.
No, the problem comes a bit later when they are called upon to articulate (if only to themselves) why and how they are saving for retirement, and their response is, “Well, I’m not an investor, so I have no opinion on that.”
Think I am imagining this? According to 2018 research from the FINRA Foundation and the Global Financial Literacy Excellence Center (GFLEC) at the George Washington University School of Business, “Only 25% of workplace-only investors could correctly answer the asset pricing question about their understanding of the relationship between interest rates and bond prices…” Less than half of those surveyed who only invest through their employer 401(k) or similar could correctly describe the concept of risk diversification, a significantly lower percentage than those investors who also held non-workplace investment accounts.
As much as I preach a hands-off-to-the-point-of-inertia approach to investing, I don’t mean for you to pay no attention whatsoever, okay? If you are a participant in your company’s 401(k), you are an investor, just like our apocryphal Smooth Operator. But hopefully, a whole lot smarter.
(Hey, I’d love to be in touch regularly. My free newsletter contains this blog, as well as other articles written by myself and others. Please consider subscribing by visiting the MoneyByLisa home page.)