Passive Investing: Seniors Near the Edge of Change

New England 2011_001 With Text

I recently taught a course to retirees on passive investing at the University of Georgia’s Osher Lifelong Learning Institute (OLLI). Many in the class had portfolios with various brokers or financial planners, some local, some far away, and the portfolios were complicated and laden with high-cost mutual funds as well as individual stocks and bonds. They were not making much money, and they wanted to hear about a different approach.

Many of us developed portfolios at work by enrolling in retirement savings programs. Our current portfolios reflect choices made years ago, and several class members still owned investments that were part of their first retirement programs. Several classmates were widows whose husbands left complex portfolios.

Most had heard about passive investing—where investors buy and maintain low-cost stock and bond index funds that aim to replicate the long-term performance of stock and bond markets—and they wanted to consider changing over to a passive approach. For the most part, however, class members were cautious, settled, not given to impulsive behaviors.

The class was calm and thoughtful. These were people who had raised families, held jobs, owned homes, lost parents, divorced spouses—we had all been bruised and strengthened by life’s problems. They asked questions, brought up points I’d missed, and helped one another understand the subject. Their egos stayed in the background.

Maybe they will adopt passive investing, or maybe they won’t. They’ll be thinking it over in the weeks ahead.

All of us in the class saved regularly for most of our lives. We learned to save from our parents, many of whom struggled with unemployment and poverty during the Great Depression, when we didn’t have widespread entitlement programs.

We complained that our children hadn’t saved much. They came of age during the last twenty to forty years when American life seemed permanently characterized by robust economic growth and good job prospects. We found it hard to teach them that prosperity is tenuous when we received raises, found better jobs and bought bigger homes, which seemed always to increase in value.

In the last decade or so, housing values plummeted and jobs again have been harder to find. Still, our children are haunted by the relative wealth of their youth, and many still behave as if jobs and prosperity are sure bets. Yet now, with vanishing employer pensions, our children face a much greater need to save and invest.

Of course our class was self-selected for the characteristics I’m describing. We all volunteered for the class. Hundreds of other retirees signed up for more recreational courses. But we were serious, a little worried about our children, wondering what changes we might ourselves undertake.

Complexity and inertia are common—life is that way for serious people.