Home > News > Press Releases  

Immediate Release
July 12, 2002

401(k) Investors Stay Confident Despite Market Troubles Confidence from Moderation and Conservative Investments

Washington, DC - Despite growing concern about the integrity of the information provided by corporate America and continued stock market turbulence, 90% of workers and retirees have confidence in the safety of their 401(k) investments according to a survey by the Stable Value Investment Association (SVIA). SVIA's Conservative Investments Survey covers 500 workers who participate in their employer retirement savings/401(k) plan and 300 retirees who have a balance of at least $5,000 in their former 401(k) plans. SVIA's survey finds that less than 10% of retirees and workers are shaken by current market instability. The survey finds that only seven percent are "less than confident" and two percent are "not at all confident" in the safety of their retirement investments.

"During the 1990s bull market, 401(k) investors focused a great deal on investments in the stock market and became more savvy about the different types of equity investment. However, many appear to have miscalculated their tolerance for risk or the potential loss from equity investments. The past 18 months of stock market experience have made investors keenly aware of the downside nature of this risk. In fact, the survey finds most took a moderate approach to investing, which may explain their level of confidence despite continued turbulence in the equity markets," reports Mathew Greenwald, President of Mathew Greenwald & Associates, the Washington, DC, independent polling firm that conducted the survey.

The survey finds that the majority of retirees (58%) prefer a retirement investment portfolio that allows them to take the least amount of risk necessary to achieve a steady stream of income. However, only 37% of retirees are willing to take a moderate level of risk in order to receive moderate returns, and one percent report a willingness to take a high level of risk in hopes of having high returns on investments.

"Retirees' sensitivity to risk is not surprising," says SVIA President Gina Mitchell, "since they rely upon this money to make ends meet. It is not conceptual. It is reality. They have fixed incomes and readily understand that a loss can mean a reduction in their standard of living."

What is surprising is the low tolerance for risk among current workers. Only seven percent of respondents report they are willing to take a substantial risk for a substantial gain. The majority (64%) report a willingness to take a moderate amount of risk in the hopes of receiving a moderate return. And, 28% said they are willing to take only a "small" or "minimum" amount of risk, even if it reduces the money they make on their investments.

"Market conditions and a desire for moderation also explain the appeal and increased interest in Stable Value Funds," says Mitchell. Eighty-one percent of workers found Stable Value's higher rate of return, as compared to money market funds over the past several years, to be very or somewhat appealing. "Stable Value Funds have beaten money market returns by 125 basis points over the past five years," notes Mitchell, "and in response to the sharp drop in the stock market in 2001, Stable Value assets increased by 15% to over $261 billion."

Stable Value's ability to act as a hedge against riskier stock market investments is desirable according to 79% of workers. Seventy-two percent find appealing Stable Value's ability to produce returns comparable to intermediate bonds but without the associated risks of bonds. Eighty-one percent of surveyed workers indicate they would invest in a Stable Value Fund if offered one.

However, the survey finds only 42% of workers report having a Stable Value investment option available, while 72% of those who have access to a Stable Value Fund invest in the option. "It's a shame that not all 401(k) investors have access to Stable Value Funds," reports Mitchell, "since they combine the best features of conservative funds: returns similar to bonds without the risk of market value loss, and the safety and liquidity of money market funds. Plus, Stable Value Funds generally have lower fees than either money markets and bond funds," concludes Mitchell. Over half of all workers (54%) report that between 10-50% of their current investments are in conservative funds.

Like active workers, retirees also find the characteristics of Stable Value Funds to be appealing. Fifty percent of retirees say that between 10-50% of their retirement assets are invested in funds such as money markets, bonds, or Stable Value Funds.

Stable Value Funds deliver safety and stability by preserving principal and accumulated earnings. They are similar to money market funds but offer considerably higher returns, which make them comparable to intermediate bonds minus the volatility. They are available in one-fourth of all defined contribution plans and comprise more than $261 billion in assets. Stable Value Funds are also offered in Individual Retirement Accounts and 529 college savings plans.

***

These findings are part of the SVIA's Conservative Investments Survey, a survey that focuses on trying to better understand the need for secure, low risk investments in our current investment climate, as well as to gauge the level of familiarity and appeal of Stable Value Funds. Greenwald and Associates conducted the survey in May 2002 through a 15-minute national survey with workers (those who participate in their employer's retirement savings plans) and retirees (those who have at least $5,000 in former retirement savings plans.)

SVIA is a non-profit organization dedicated to educating the public on the importance of saving and investing for retirement and the contribution that Stable Value Funds can make in providing for a financially secure retirement.