How MagnifyMoney Gets Paid

Advertiser Disclosure

Investing

4 in 10 Investors Definitely Think They Can Beat the Stock Market

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone and is not intended to be a source of investment advice. It may not have not been reviewed, commissioned or otherwise endorsed by any of our network partners or the Investment company.

Written By

Reviewed By

Think you can beat the stock market? According to the latest MagnifyMoney survey of more than 1,000 Americans with at least one investment account, 40% definitely think they can get a better return on their own investments than what they’d get from a broad index fund such as the S&P 500.

That percentage varies greatly, however, among men and women; Democrats and Republicans; and millennials, Generation Xers and baby boomers.

Some see investing as a game and are ready to play to win. Others tend to want to spend more time sitting on the bench. Here’s what we learned from our survey.

Key findings

  • 40% of investors definitely think they can beat the stock market. That figure jumps to 53% of men (versus 19% of women), 54% of Republicans (versus 31% of Democrats) and 55% of millennials (versus 47% of Gen Xers and 16% of baby boomers).
  • Millennial investors favor an active investing approach, meaning they’d rather hand-pick their investments and/or time stock purchases on their own. More than 3 in 10 (31%) millennials with investment accounts take this approach, compared with nearly 2 in 10 Gen Xers (19%) and baby boomers (19%).
  • Men estimate their investing as “very competitive” at a rate triple that of women (46% versus 15%). On the other hand, 55% of women don’t think they’re very competitive when investing, while only 24% of men said the same.
  • Men (40%) are more likely than women (17%) to treat investing in stocks as a game, while women (49%) treat it as a safer way to save money than men (33%).
  • Just under a third of investors (32%) said they predominantly focus on maximizing long-term gains, even if it means short-term losses. However, a similar number (29%) instead focus on avoiding immediate losses at the expense of long-term gains.

Trying to beat the market is a gamble, our experts say

Investors believe there’s potential to get more out of the stock market than they put into it — or they wouldn’t invest. However, some believe they can “beat” the market, which — for our purposes — means getting a better return on your own investments than that of a broad index fund.

Since 1928, the S&P 500 has had an annual average return of 7.7%

Broad index funds are traditionally popular because they’re easy to understand, offer a simple way to diversify assets and come with lower costs and risks. What they don’t come with, though, is the potentially big payoffs that can occasionally accompany individual stock purchases.

Trying to beat the market is a gamble, and some are more inclined to take their chances than others. At least 40% of respondents said they definitely think it’s possible to beat the stock market, and another 36% think it’s somewhat possible. That’s more than three-fourths of investors who share either sentiment, combined.

While that confidence is admiral, in general, experts said trying to beat the market isn’t the best move.

“It is certainly interesting, and a bit disheartening, to hear that so many investors think they can beat the stock market,” said Sarah Berger, millennial personal finance columnist at MagnifyMoney. “Even actively managed investment funds tend to historically underperform when compared to popular market benchmarks. If the investment pros can’t even outperform the market, that should be a strong sign that you shouldn’t try to beat it, either.”

So, why do some think their choices are better than those in an index fund? “People who think they can beat the stock market can be acting on feelings of overconfidence or on self-attribution bias, which is when you chalk up your successful outcomes to your own actions and your negative outcomes to external factors,” Berger said.

Those feelings seem to be driven in part by life experience, personal circumstances and personality. Breaking down respondents further:

  • Men (53%) are much more likely to definitely believe they can beat the stock market than women (19%).
  • The same percentage of women (41%) believe it’s somewhat possible to beat the market and not possible to beat it, while 33% of men think it’s somewhat possible, and only 14% don’t believe it’s possible.

Younger generations are more likely to believe in their abilities than older generations. In fact, 55% of millennials think they can beat the stock market, versus 47% of Gen Xers and 16% of baby boomers.

Baby boomers are the most likely to think it’s somewhat possible to beat the market (44%), followed by:

  • 34% of millennials
  • 27% of Gen Xers

Baby boomers are also the biggest doubters, with 40% stating they don’t think it’s possible to beat the market. Only 26% of Gen Xers and 11% of millennials reported the same.

Meanwhile, Republicans are most likely to believe their risks can pay off, with 54% stating they think it’s definitely possible to beat the market. Democrats (31%) are less likely to hold this belief.

More than 3 in 10 (31%) Democrats and nearly 2 in 10 (18%) Republicans said they don’t think it can be beat.

More prefer passive investing over active investing

Even though they may believe they can beat the stock market, most people (40%) still prefer to invest in proven index funds, which is known as passive investing. Just a quarter of people (25%) said they prefer to hand-pick their own stocks (active investing), and 35% prefer a combination of both passive and active investing.

More men than women prefer both passive investing (44% versus 34%) and active investing (28% versus 21%). Meanwhile, 46% of women prefer a combination of both types of investing, while only 29% of men do.

Millennials (31%) are the most likely to prefer active investing, compared with:

  • 19% of baby boomers
  • 19% of Gen Xers

Baby boomers (46%) are the most likely to favor a combined approach of both passive and active investing, compared with:

  • 32% of Gen Xers
  • 28% of millenials

Republicans (47%) are the most likely to prefer passive investing, compared with 39% of Democrats. The percentage of those who prefer active investing is similar across party lines: 25% of Democrats and 23% of Republicans.

Looking for help? Check out MagnifyMoney’s list of the the best robo-advisors of 2020

More than 1 in 3 definitely agree they’re very competitive with investing

Men, millennials and Republicans were the most likely to agree that they’re very competitive when it comes to investing. Those who somewhat agreed with it were split fairly evenly across gender, age and political affiliation, while higher percentages of women, baby boomers and Democrats disagreed with the statement.

Noteworthy:

  • 34% of investors definitely agree that they’re very competitive when it comes to investing. An additional 30% somewhat agree with that statement.
  • 47% of millennials and 43% of Gen Xers definitely agree that they’re very competitive about investing, while only 12% of baby boomers said the same. In fact, 62% of baby boomer investors said they’re not at all competitive.
  • Republicans self-reported themselves as competitive investors at higher rates than those who identify as Democrats: 50% versus 26%. On the other hand, 42% of Democrats said they’re not at all competitive, versus 25% of Republicans.

About 3 in 10 treat investing as a game

Is investing a game or a safe way to save money? In general, most believe it’s a safe way to save money (39%), though nearly a third of people (31%) see it as a game. Another 30% see it as a little of both.

Men are more than twice as likely to see investing as a game than women (40% versus 17%), and millennials were more than three times as likely to see it that way than baby boomers (42% versus 13%). As for political affiliation, Republicans (41%) are more likely to see it as a game than Democrats (24%).

It also seems that those with more education are more likely to treat stocks as a game, with 38% of those with a bachelor’s degree or higher stating they do so, while only 29% of those who have no college education and 14% of those with some reported the same. The survey also found that those with no college education (47%) and those with some (44%) are more likely to treat it as a safe way to save money than those with a bachelor’s degree or higher (36%).

Slightly more investors focus on maximizing long-term gains

While more investors said they’re willing to focus on maximizing their long-term gains even if it means short-term losses, the percentage (32%) isn’t overwhelming. Meanwhile, 29% said they’re willing to avoid immediate losses, even if it means sacrificing long-term gains.

Of note:

  • Men are twice as likely as women to focus on avoiding immediate losses (36% versus 18%) while far more women (22% versus 9%) said they don’t think about either avoiding immediate losses or maximizing long-term gains at the expense of the other.
  • Nearly a quarter of baby boomer investors (24%) said they don’t really think about avoiding immediate losses or maximizing long-term gains. Only 12% of Gen X and 7% of millennial investors said the same.
  • Republicans (38%) are more likely to focus on avoiding immediate losses than Democrats (25%).

In general, Berger said that while there are no guarantees when it comes to the stock market, investors should have confidence that the stock market, historically, has always recovered from downturns.

September: 42% of Investors Sold Stock at Start of Pandemic — And Nearly All Regret Doing So

“Having confidence that the stock market will eventually generate decent returns is critical,” she said. “If you have no confidence in the market, you may be tempted to pull out your money when you see your portfolio balance dip. If you do that, you are missing out on compounding returns and not giving your portfolio time to rebound. It’s all about striking the balance between feeling confident enough that the stock market will eventually generate returns, without getting too cocky and thinking you’re able to beat it.”

Methodology

MagnifyMoney commissioned Qualtrics to conduct an online survey of 1,066 Americans with at least one investment account. The survey was fielded Oct. 9-13, 2020.

Generations are defined as the following ages:

  • Millennial: 24 to 39
  • Generation X: 40 to 54
  • Baby boomer: 55 to 74

The survey also included responses from members of Generation Z (ages 18 to 23) and the silent generation (ages 75 and older). Due to the low sample size among both age groups, their responses were factored into the overall percentages but excluded from the generational breakdowns.

magnifymoney

Connect with a Financial Advisor to Help You Grow & Protect Your Wealth

Find An Advisor
Terms & Conditions Apply.

How MagnifyMoney Gets Paid

Advertiser Disclosure

Investing

64% of Americans Think They’ll Keep Working After Retirement

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone and is not intended to be a source of investment advice. It may not have not been reviewed, commissioned or otherwise endorsed by any of our network partners or the Investment company.

Written By

Reviewed By

What it means to be retired in America may look differently than we imagine, as more than 6 in 10 Americans think they’ll keep working after retirement, according to the latest MagnifyMoney survey.

The financial impact of the COVID-19 crisis may lead to more unemployment, households borrowing money from their retirement savings to cover expenses and Americans rethinking how they can retire comfortably.

MagnifyMoney surveyed more than 2,000 Americans — nearly 1,700 of which haven’t already retired — to learn how people are envisioning retirement. This, in many cases, still involves working to some extent.

Key findings

  • 64% of Americans think they’ll keep working after retirement. That figure jumps to 72% for men, versus 56% for women.
  • Nearly 1 in 10 Americans (7%) don’t think they’ll ever stop working, especially those who make less than $25,000 a year (13%).
  • Of those who’ve already retired — 332 respondents — 13% have continued to work in some form. An additional 20% are considering it.
  • 57% of Americans who think they’ll keep working after retirement said they’d do so because they’d need the money. Separately, 44% said they’d get bored otherwise.
  • Those who think they may continue working after retirement would be most likely to pursue part-time work in a service field such as grocery or retail (33%), followed by part-time work in their current field, such as consulting or freelancing (24%).

More than 6 in 10 think they’ll keep working after retirement

While it seems like a bit of an oxymoron to be retired and still working, those who will continue to work after retirement will likely have a vastly different work life than they did pre-retirement.

They may choose to work part time in a service field such as retail or in their former industry as a consultant or freelancer. Some may choose to monetize a hobby, such as teaching yoga, or start their own business.

There wasn’t a huge generational divide when it came to planning to work less during retirement. Generation Z (47%) was the only group that was far less likely to believe they’ll keep working after retirement, compared with:

  • 67% of millennials
  • 65% of Gen Xers
  • 69% of baby boomers

Sarah Berger, MagnifyMoney’s millennial finance columnist, said one potential reason that Gen Zers might not feel like they’ll have to keep working after retirement could have to do with their level of financial literacy.

“Younger generations have less experience managing their finances, and older generations likely have a more realistic picture as to how much money they will actually need to retire, and the amount of money that they will need to live comfortably within retirement,” Berger said.

Household incomes appeared to have a stronger impact on retirement plans than age. Respondents within the highest income category — $100,000 or more — were most likely to plan to work after they retire (80%).

While it’s difficult to say why this may be, it could be because high-income earners are accustomed to maintaining a more expensive lifestyle. Or, their career paths can lead to more appealing options for working post-retirement, such as part-time consulting within their industry.

7% of Americans don’t think they’ll ever stop working

While 7% of American don’t think they’ll ever stop working, a more promising 25% of Americans do think they’ll be able to retire between 60 and 65. Meanwhile, 17% of Americans expect to retire between 66 and 69.

There appears to be a gender divide when it comes to planning when to stop working. While 23% of women think they’ll retire between 66 and 69, only 11% of men said the same. More men think they’ll retire between 60 and 65.

Respondents that have a household income of $100,000 or more were the most likely group (29%) to expect to retire between 60 and 65.

2 in 3 retired Americans aren’t considering a return to work

Even though someone is retired and not working, that doesn’t mean there may not come a day when they feel the need to return to work for either financial or personal reasons.

Even though 67% of retired Americans aren’t considering a return to work, it’s still impactful that 33% of retired individuals are either continuing to work during retirement or are thinking about beginning working again.

More men than women are either working during retirement or are considering returning to work post-retirement in some manner. In fact, 15% of men are working during retirement, compared with 12% of women. And 23% of men are considering continuing to work in some form, versus 18% of women.

It’s worth repeating that this portion of the survey is based on the responses of 332 Americans who identified as retired.

From needing money to being bored, reasons for working vary

While 57% of Americans who think they’ll keep working after retirement reported this will likely be because they need to earn more income, 44% of respondents named curing boredom as their motivation.

Other respondents listed other reasons for planning to work during retirement, such as:

  • Needing a transition between full-time work and not working at all
  • Truly loving their careers and wanting to continue working to a lesser extent
  • Wanting to experience working in a new industry

Older Americans who plan to keep working after retirement mainly said they’d do so because they’d need the money:

  • 62% of baby boomers
  • 62% of Gen Xers
  • 56% of millennials
  • 36% of Gen Zers

Meanwhile, Gen Zers predominately said they’d be bored otherwise (59%).

While more than 1 in 2 of those who make $100,000 a year or more said they’d do so because they need the money, nearly 1 in 5 said they truly love their career and want to continue.

By contrast, 71% of those who make less than $25,000 and plan to keep working would do so for the money, while just 6% said they’d do so because they love their career.

More than 1 in 2 cite family as reason why they wouldn’t continue working

Alongside uncovering why people want or need to keep working during retirement, MagnifyMoney also investigated why some wouldn’t want to continue working during that stage of their life.

The main motivation to stop working? Family. In fact, 51% of respondents reported wanting to have more time to relax and spend with family as a motivation for retiring fully.

More than 2 in 10 (21%) respondents believe they’ll have enough money saved to replace any lost income and won’t need to work past retirement. In particular, 31% of men reported feeling financially confident enough to retire fully, compared with 14% of women.

Working after retirement: What to do?

When it comes to working post-retirement, what that work looks like can vary greatly.

Those who think they may continue working after retirement would be most likely to pursue part-time work in a service field such as grocery or retail (33%), followed by:

  • Part-time work in their current field, such as consulting or freelancing (24%)
  • Monetizing a hobby, such as teaching yoga or selling art (17%)
  • Starting a business (12%)

Of the Gen Zers who think they’ll keep working after retirement, 20% would do so by starting their own business, which they reported more than any other generation. Meanwhile, 16% of millennials agreed, but only 8% of Gen Xers and 5% of baby boomers felt the same way.

Gen Zers were also most likely to say they’d monetize a hobby (28%), versus:

  • 17% of millennials
  • 17% of Gen Xers
  • 12% of baby boomers

Saving for retirement so you shouldn’t need to continue working

For those who want to retire fully, there are steps they can take that can help them prepare for a comfortable retirement and ensure they don’t need to work during that stage of their life. Here are a few best practices for preparing for a happy retirement, via Berger.

  • Max out your 401(k). Maxing out your 401(k) is a powerful tool at your disposal. At the very least, you should contribute enough to take full advantage of any company match that is offered. If maxing out your 401(k) doesn’t feel feasible right now — and that’s OK during a pandemic — consider dialing up your contributions by one percentage point on a regular schedule, such as every six months or once a year, to ease into it.
  • Save extra for retirement outside of a 401(k). Saving for retirement with both a 401(k) and a Roth IRA is a smart retirement plan, as they provide different tax advantages. This essentially gives you the best of both worlds.
  • Work with a financial advisor. Working with a financial advisor can be beneficial if you’re worried that you’re not on track to hit your retirement goals and need help developing a robust plan. Whether you’re looking for a financial advisor in Dallas or New York, MagnifyMoney can assist.
  • Budget for retirement savings. “Factoring in saving for retirement into your monthly budget is a good idea, as it will give you a clearer picture as to the amount of money you actually have to spend during the month,” Berger said. “It can also help you keep your retirement goals top of mind.”

Methodology

MagnifyMoney commissioned Qualtrics to conduct an online survey of 2,021 Americans, with the sample base proportioned to represent the overall population. Of the total sample size, 1,689 respondents identified as not retired and 332 identified as retired. The survey was fielded Oct. 9-13, 2020.

Generations are defined as the following ages:

  • Gen Z: 18 to 23
  • Millennial: 24 to 39
  • Gen X: 40 to 54
  • Baby boomer: 55 to 74
  • Silent generation: 75 and older
magnifymoney

Connect with a Financial Advisor to Help You Grow & Protect Your Wealth

Find An Advisor
Terms & Conditions Apply.

How MagnifyMoney Gets Paid

Advertiser Disclosure

News

How Much the Average American Household Has in Savings, and the Impact From COVID-19

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It may not have been previewed, commissioned or otherwise endorsed by any of our network partners.

Written By

Reviewed By

A heavy consumer focus on savings has never been more important with the economic volatility brought on by the coronavirus pandemic. But average American household bank account balances are down 3%.

MagnifyMoney researchers examined average American savings and retirement data from before and after the coronavirus crisis began to provide a fuller picture. This can help evaluate how the pandemic has altered consumer savings in U.S. households. Here’s what we discovered.

Key findings

  • The average American household had a bank account balance of $41,700 in 2019, down 3% from 2016. The median bank account balance for households was $5,300 in 2019, up 11% from 2016.
  • The average American household had a retirement account balance of $255,200 in 2019, up 5% from 2016. The median retirement account balance for households was $65,000 in 2019, up 2% from 2016.
  • The U.S. personal savings rate — which measures the percentage of disposable income that households save — jumped from 12.9% in March 2020 to 33.6% in April 2020, a 160.5% increase driven by the pandemic.
  • Half of U.S. consumers believe they should have $10,000 or more in emergency savings, but more than half say they only have $3,000 or less combined in their savings and checking accounts.
  • 31% of American households say they or someone in their family has used all or most of their savings during the coronavirus crisis.

Average and median account balances in U.S. households

Here are the average and median household account balances, as of 2019, for bank and retirement accounts, as well as certificates of deposit:

Bank accounts, as defined by the Federal Reserve, include:

But not all households have various types of accounts:

As shown, 98.2% of households have at least one of these types of bank accounts. Here are details on the various accounts, comparing 2019 to 2016:

  • 98.2% of American households had bank accounts in 2019, up slightly from 2016
  • 50.5% of American households had retirement accounts in 2019, down 3.1% from 2016
  • 7.7% of American households had certificates of deposit in 2019, up 18.5% from 2016

Americans saved 33.6% of their income as unemployment surged

The coronavirus crisis created a volatile job market as the national unemployment rate rose to a record 14.7% in April — an increase of more than 10 percentage points from March.

As a result, monthly unemployment insurance benefits exponentially increased to $18.3 billion in April, up from $3.9 billion in March.

During the same period, the personal savings rates increased from 12.9% to 33.6%, which can point to consumers using unemployment and economic impact payments to supplement their savings accounts.

Monthly unemployment insurance benefits spiked to $23.8 billion in May before dropping to $16.2 billion in August. And the personal savings rate — which was 14.1% in August — has dropped monthly since April.

Half of U.S. consumers believe they should have $10,000 in emergency savings

According to a September 2020 survey conducted by the Consumer Financial Protection Bureau, more than half of consumers feel unprepared with little emergency savings.

Surprisingly, income levels didn’t significantly impact the amount consumers believe they need in emergency savings. Here’s a further breakdown:

“A high percentage of consumers don’t have the emergency savings that they think they need, which is even the case for those with incomes of up to $70,000,” said Ken Tumin, founder of DepositAccounts. “This shows that it takes more than just higher income to be financially prepared for unexpected problems.”

Households in largest U.S. cities depleting savings faster

Nearly 1 in 2 (46%) households have faced serious financial problems amid the coronavirus pandemic, according to a September survey from NPR, the Robert Wood Johnson Foundation and the Harvard T.H. Chan School of Public Health. Those issues ranged from depleting savings to challenges paying rent to trouble affording medical care.

Looking at the four largest U.S. cities, Houston had the highest percentage of households where respondents had to use most or all of their savings, at 41%. Houston was followed by:

  • Los Angeles: 35%
  • Chicago: 35%
  • New York: 34%

These compare to the national average of 31%.

Large cities have generally faced longer and more severe shutdown measures, which have resulted in higher unemployment rates. This may explain why large cities have a higher percentage of households that have used all or most of their savings amid the coronavirus crisis.

“Emergency savings can help families weather periods of unemployment, but as shutdown measures continue, prolonged unemployment may drain even well-funded emergency savings,” Tumin said. “Since there remains considerable uncertainty in the nation’s economic future, consumers should make it a priority to fund their emergency savings to cover at least six months of living expenses.”

Checking deposits leading savings growth at commercial banks

Here’s a closer look at how customers at banks are allocating their deposits. The amount of savings in commercial banks has grown by a little more than $7 trillion since the start of 2009.

The pandemic has generated substantial growth in checking deposits over CDs, indicating that consumers value more flexibility and access to their accounts during this volatile period.

CD popularity continues decrease due to steady declining yields

The popularity of CDs has waned as banks pay relatively low APYs, even for longer CD maturities.

In 2020, the average yield for locking up savings in 12-month CDs barely exceeded the average yield on money market accounts, which are more liquid than CDs.

Mid-March saw the largest yield decreases across 12-month, 24-month and 36-month CDs, which aligns with the decreases in deposits shown previously.

Credit unions offering slightly better yields

In the first quarter of 2020 — the latest available data — savings increased in the much smaller credit union universe, while CD deposits remained steady.

At credit unions, regular share accounts are similar to savings accounts, while share certificates are similar to CDs.

While there are multiple explanations for the steady share of CDs at credit unions — such as the institutions’ nonprofit statuses, with members as shareholders — one apparent reason is the competitive rates they offer customers relative to banks.

Credit unions generally offer consistently interest higher rates on savings than commercial banks.

Sources

  • Federal Reserve 2019 Survey of Consumer Finances
  • Statista
  • U.S. Bureau of Economic Analysis
  • Consumer Financial Protection Bureau
  • NPR, the Robert Wood Johnson Foundation and the Harvard T.H. Chan School of Public Health
  • Federal Reserve Bank of St. Louis
  • FDIC
  • National Credit Union Administration