Wednesday, November 30, 2005

Neglected nest eggs

A recent study by the mutual fund giant Vanguard Group suggests that investors don't pay much attention to their retirement savings and often don't diversify well.
The fund firm looked at more than five million people with employer-sponsored defined-contribution plans or individual retirement accounts that it administers and found that during the first six months of 2005, only 10% of investors in the defined-contribution plans and 8% of IRA owners made any trades within the accounts.
Vanguard also found that a large percentage of IRA owners and defined contribution plan participants only invest in a single asset class or a single mutual fund.

While it's true that many investors are not well diversified, here's the important thing to note about this particular study: the sample was 5 million Vanguard clients. Vanguard, as a financial services provider, attracts clients who want to invest on the cheap. Its customers want low fees and no help. They have been convinced by the popular financial media that the most important aspect of investing is price, the cheaper the better. Service and education are lower priorities. Is it really surprising that their accounts are in such sad shape?

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