In your opinion, do individual investors accurately assess the importance of accumulating retirement assets?
Jill Foote, CFA, Ph.D.
Individual investors are significantly more astute about their investment and retirement portfolios today than at any time in the past. Unfortunately, the need for them to be more actively involved in accumulating retirement assets has also been increasing as Social Security is no longer ensured and the markets have been so volatile.
Individuals would be well-served to set targets for their retirement portfolios either as a whole or, even better, by individual asset class. Targets can be set in terms of dollars or as percentage returns as the investor prefers, along with a (time frame for) achieving those targets. Additionally and critically, both upside goals and downside loss tolerance should be established. Then, the portfolio should be monitored versus these goals quarterly and should be discussed with a trusted investment professional at least once a year. Such targets and monitoring instill investment discipline, help reduce emotionally based trades (detailed further in story "Big investment boo-boos people make"), and keep investors focused on long-term progress toward those goals.
Steven Dolvin, CFA, Ph.D.
No. Most people underestimate the importance, either relying on Social Security or simply being ignorant of the process. Many studies and surveys have shown a lack of knowledge and commitment to asset accumulation.
Todd Feldman, Ph.D.
Many individuals do not save enough. The best advice for any individual is to put a certain amount of money away each month. This has the benefit of two things. First, you buy when asset prices fall. From the beginning of 2000 to the end of 2011, an individual investor would have lost money assuming she put money away in 2000 and let it sit there. However, an individual who purchased every month would have had a 2 percent to 3 percent return over that same period. The reason has to do with buying at market bottoms in 2002 and 2008. Second, the power of compounding. A little money each month goes a long way over the long run. The most important question is how much to put away each month. I would recommend to put away as much as possible without compromising your lifestyle.