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No Such Thing as a Typical Investor

Investing is a broad club: Jake Spiegel finds a better way to think about investors

A majority of American households are now investors. A new report by Jake Spiegel, It's Time to Redefine 'Investor,' helps us understand what's changed and tells us why it matters for investors and the financial services industry. The report is part of the Morningstar's Investor Success Project, which I've been writing about, and it helps us understand the fundamental question: Who invests?

Some Myths Discarded Nearly 61% of working American households are about 53% of all American households are now investors. While there is a common stereotype of investors as older, white, upper or middle income men (for full disclosure, I'm one of them) that stereotype just isn't that useful; it doesn't bear out in practice.

In fact, Spiegel finds that nearly a quarter of investing households are younger than 37. A third of investing households earn less than the median American income (about $52,000 per year). About 26% are of non-European descent--not unlike the U.S. population as a whole. In other words, many of the stereotypes used in the media about investors are simply wrong. Not because older, white, upper and middle income men aren't investors; rather, investing is a broad club.

A Better Way to Think About Investors The key to understanding this broad club is this: examine what people do rather than what they look like or how much money they have. Spiegel finds that a pragmatic way to understand the universe of investors is by how they invest. He discusses three major categories: those who invest through their retirement accounts alone; those who invest via retirement accounts plus another vehicle; and those who do not invest at all.

Among working households, about 40% invest via retirement accounts alone, 20% invest more broadly, and 40% don't currently invest in financial markets. There are some significant differences among these groups. In terms of net wealth, for example, retirement-plus investors are far wealthier than retirement-only investors, who, in turn, are wealthier than noninvestors.

Some highly engaged, multivehicle investors might look at the 40% who invest through retirement accounts alone as "not real investors." I beg to differ. Just as there is diversity among the community of brokerage account investors (some choose to be very hands-off with long term, passive investments; some let their advisor take care of everything; some are actively engaged in picking stocks and funds) so too is there diversity among retirement investors as well. Many are defaulted into a plan and stick with it; others decide to take a more active role. Among both types of investors, there are those who need good default options, and those who need detailed information to help power their own decision making.

What Does This Mean? For me, Spiegel's report provides a sign of the growth of investing, and that's a good thing. Participating in the engine of the U.S. economy--through investments in stock and bond markets--has helped many investors grow wealth and prosperity over time.

That doesn't mean income and wealth is spread evenly throughout the country, nor that all households are investing at the same level, of course. There is a massive range of wealth among investors, as recent articles have discussed. But it means that the need for good defaults (for those who need them) and quality, unbiased information (for those who want it) is as strong as ever. Whether someone has exposure to the markets through a small workplace plan or a sizable nest egg, thoughtful investing can help them do better with what they have.

As investing comes to represent the vast diversity of our country as a whole--whether it be economic, ethnic, gender, or otherwise--more people can benefit, and long-standing investors of any background can share their lessons about the many challenges and pitfalls along the way.

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Steve Wendel

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Steve Wendel is head of behavioral science for Morningstar, where he leads a team of behavioral scientists and practitioners who conduct original research to help people invest and manage their money more effectively. Before assuming his current role in 2015, he was principal scientist for HelloWallet, a company that specializes in web and mobile financial wellness programs, where he studied savings behavior and coordinated the research efforts of HelloWallet’s advisory board. Morningstar owned HelloWallet from 2014 to 2017.

His latest book, Improving Employee Benefits, shows HR practitioners how they can use behavioral economics to help employees to take action on their benefits. In 2013, he published Designing for Behavior Change, which describes HelloWallet’s step-by-step approach to applying behavioral economics and psychology to product design.

Wendel holds a bachelor’s degree from the University of California, Berkeley, a master’s degree from The Johns Hopkins University School of Advanced International Studies, and a doctorate from the University of Maryland, where he analyzed the dynamics of behavioral change over time.

Wendel is also the founder of the Action Design Network, a nonprofit organization that teaches members how use behavioral economics and psychology in product design. The network hosts more than 5,000 behavioral practitioners at events around the country, including the annual Design for Action Conference. Follow Steve on Twitter: @sawendel

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