A Default Lifestyle
Over the last few decades governments have been increasingly moving retirement investing decisions away from companies and onto individuals. Unsurprisingly – at least to anyone who spends any time in the real world – this has led to a lot of poor pensioners and rich fund managers. Slowly, the world has begun to recognise that simply entrusting people with responsibility for managing their own savings is quite a dangerous thing to do: people don’t behave as the models predict. Frankly people don’t even behave as they themselves predict.
In response to this we’re beginning to see the creation of a set of default investing options designed to remove some of the behavioural effects from the process. Amongst these is the idea of the lifestyle fund which defaults investors into a set of investment options that changes as they get older. While this is, in theory, a goodish idea, it doesn’t come close to addressing a fundamental problem which is that people’s wealth is constituted of both their savings and their ability to earn in future. If your job is safe as a bond then investing in shares is probably a good thing, but if it’s not then the default option may be utterly non-optimal.
Over the last few decades governments have been increasingly moving retirement investing decisions away from companies and onto individuals. Unsurprisingly – at least to anyone who spends any time in the real world – this has led to a lot of poor pensioners and rich fund managers. Slowly, the world has begun to recognise that simply entrusting people with responsibility for managing their own savings is quite a dangerous thing to do: people don’t behave as the models predict. Frankly people don’t even behave as they themselves predict.
In response to this we’re beginning to see the creation of a set of default investing options designed to remove some of the behavioural effects from the process. Amongst these is the idea of the lifestyle fund which defaults investors into a set of investment options that changes as they get older. While this is, in theory, a goodish idea, it doesn’t come close to addressing a fundamental problem which is that people’s wealth is constituted of both their savings and their ability to earn in future. If your job is safe as a bond then investing in shares is probably a good thing, but if it’s not then the default option may be utterly non-optimal.
