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Many Californians 50+ Confused by Mutual Fund Industry Practices:
Tewksbury, MA — Overwhelmed with too many choices, turned off by complex prospectus language, and not sure who to turn to for advice, many Californians in their prime savings years are falling behind in the retirement funding race, according to a survey of Californians released today by AARP Financial.
"Investing for retirement has been made unnecessarily complex, confusing and time-consuming," said Nancy M. Smith, Vice President of Investment Services at AARP Financial. "In response, many investors save too little, too late or too sporadically. Others throw up their hands in frustration and stop saving altogether."
From Baja to Berkeley, Californians are under-saving. The survey of 500 California residents age 50-plus found that 36% of pre-retirees saving for retirement have accumulated less than $100,000. "Our survey looked at Californians who are already saving for retirement," Smith pointed out. "When you look at the general population, the picture is even more discouraging." Conducted in conjunction with the Life@50+ annual AARP member conference in Anaheim, the research was designed to explore retirement investing issues among AARP members and non-members alike.
The survey of 500 California residents was conducted via the Internet between October 4 and October 16, 2006 by Data & Management Counsel, Inc. Participants had to be at least 50 years old, have money saved for retirement and own mutual funds in their retirement portfolio. The margin of error for the 500 interviews is plus or minus 2 to 3%.
Fifty-four percent of the Californians surveyed think investing is too complex for the average person and many cite product design and industry practices as a source of confusion.
Reflecting the fact that investors are overwhelmed by too many investment choices, the state of California recently reduced the number of funds offered in its 401(k) and 457 savings plans from 20 to 15 in an effort to help participants "focus on an asset allocation approach."
"Research suggests that the fewer investment options in a retirement savings plan, the higher the participation rate," Smith observed.
The survey findings suggest that poor communication is also an issue for many investors. More than three-quarters of Californians surveyed believe that a car insurance policy, instructions for a DVD player and prescription drug inserts are easier to understand than a mutual fund prospectus. Not surprisingly, then, only a third of those surveyed said they read "all or most" of a prospectus before buying a fund.
"Too many of us take more time to read the ingredients on a cereal box than we do to read a fund prospectus," says Smith. "Who can blame them? Even with all the attention paid to language simplification, many fund company prospectuses are hardly user-friendly. As a result, many investors take action without reading the prospectus at all. Investors need quality, not quantity, of information."
Most investors would like help with their retirement portfolios but aren't sure where to turn. More than half of investors surveyed believe that mutual fund companies put their own interests before those of their investors. Six out of 10 wish there was someone they could talk to about investing who "isn't trying to sell me something."
Despite the fact that fees can make a tremendous impact on returns, many investors don't check, or don't know how to check, mutual fund fees. Two out of five California fund investors surveyed are "unaware" or "not sure" of the fees they pay for their mutual funds.
"When it comes to fees and expenses, ignorance is loss, not bliss," Smith said. "The difference in cost between a low-cost fund and an average-cost fund is about 60 to 70 basis points a year. The amount saved applied against a portfolio invested over 20, 30 or more years may cover years more of living expenses in retirement."
"Investors are led to believe that they should pay for active management. But studies show that most market indexes historically outperform most actively managed mutual funds over the long-term," says Smith. "Investors who pay managers to beat the market frequently turn out to make a losing and expensive bet."
To address Americans' concerns about investing for retirement, AARP Financial created the AARP Funds- a straightforward investment approach that incorporates five fundamental investing principles: low fees, indexing, rebalancing, diversification and simple choices.
Consisting of three asset allocation mutual funds, each is designed to serve as a complete investment portfolio for the mid- to long-term investor. "It's time to demystify retirement investing." says Smith. "Our Funds provide investors with easy access to low-cost mutual funds that provide diversification and professional rebalancing. Our approach takes much of the guess work and angst out of investment decision-making."
Understanding that individual investment advice is essential to getting investors on the right track, AARP Financial has knowledgeable, experienced investment counselors on staff to help individuals make informed investment decisions.
"Our counselors are salaried, so there's no sales pressure," explains Smith. "They are evaluated on the quality, not the length of each call. Our investment counselors have one objective: to help callers identify their financial goals and invest more effectively for retirement. Plain and simple."
"We are committed to delivering institutional quality investment management to the retail investor at a low cost," adds Smith. "At AARP Financial, our focus is on the investor."
Survey results available upon request.
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About AARP Financial
AARP Financial, founded in 2005, is a wholly owned subsidiary of AARP Services, Inc. Based in Tewksbury, Massachusetts, AARP Financial is dedicated to helping people age 50 and over build a more secure financial future by offering products and services designed to meet their financial needs. AARP Financial offers a carefully chosen array of investment products and guidance, including mutual funds, auto and home insurance through The Hartford; credit cards through Chase; life insurance through New York Life; and mobile home and motorcycle insurance through Foremost.
AARP Financial is the investment advisor to AARP Funds, and oversees the sub-adviser to AARP Funds, SSgA Funds Management, Inc., a State Street Global Advisors affiliate.
AARP Financial won the Mutual Fund Education Alliance's 2006 STAR Award for Best Investor Fulfillment/Prospectus Kit and Best Retail Retirement Kit by a small company.
AARP has licensed the use of its name to AARP Funds and endorses the services provided by AARP Financial, however, AARP cannot recommend that any specific individual should purchase shares of a particular fund. AARP is not a registered investment adviser or broker/dealer.
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