How Americans Invest Their Money
Saving and investing money can play an important role in the successful management of personal finances. Money can be invested in many different ways. It can be kept in a cash account, invested in stocks, shares, bonds or funds, placed in a retirement plan or invested in a more unusual form such as gold or fine art.
Despite the fact that the economic crisis has helped to increase awareness among Americans of the importance of savings and investments, many people still have no savings. At the beginning of 2011, the proportion of Americans with no personal savings had increased from 22 percent 18 months previously to 27 percent, while the number of Americans without any retirement savings has grown from 30 to 34 percent over the same period.
Wealthier Americans and those who have significant savings and investments will typically place their money in a number of different types of investments. Retirement plans usually account for a substantial amount of investment, with decreasing amounts of money invested in mutual funds, individual stocks, bonds, cash and life insurance. The balance of investment in different forms can vary a great deal, however, and many Americans have a lot of money invested in other types of non-financial assets, particularly in property. This is reflected in the fact that the average homeowner has a net worth of 171,700 dollars, much of which is invested in their property, while the average renter has a net worth of about 4800 dollars.
One common way in which Americans invest their money is in a retirement plan. This may be a plan such as a 401k provided by their employer, or it could be an individual retirement plan such as an IRA. The money that is invested in a retirement plan will usually be placed in a variety of different types of investments, such as mutual funds and stocks. Retirement plans can offer a number of important advantages for investors, such as enabling them to defer tax payment or, in the case of 401k plans, offering matched contributions from the investor's employer.
Americans tend to choose equity funds when they are investing in a retirement fund such as a 401k, but the other investments that they select alongside equity funds tends to vary depending on their age. Newly hired employees and younger workers are more likely to choose target date funds, while investors who are approaching retirement will tend to place some of their money in stable value funds. The seven most popular types of investment make up 96 percent of the investments of 401k plan holders. Equity funds are the top choice, accounting for 41 percent of the money invested in 401ks. Investors who are in their 30s and 40s usually place half of their retirement investments into equity funds, with people over 60 investing just one third of their money into these types of funds.
Stable value funds and guaranteed investment contracts make up 13 percent of the investments in 401k plans. They are most popular with older investors, as are bond funds, which account for 11 percent of all 401k investments. Ten percent of 401k investments are placed into target date funds, mostly by younger investors. Nearly half of employees who have been working for less than two years choose to invest some of their retirement fund into this type of saving with investors in their 20s typically placing about a quarter of their retirement investment into target date funds. Company stock makes up about 9 percent of 401k investments, particularly for employees of larger companies. Balanced funds (excluding target date funds) make up 7 percent of 401k investments, with money funds accounting for 5 percent.
Savings and investments are important for Americans who want to prepare for the future. Having some money put by can enable people to cope with unexpected bills or emergencies, or to save up for a major purchase such as a new home. Savings and investments are also important for individuals who want to ensure that their loved ones will be provided for in the future, or who need to prepare for their own retirement. Despite the importance which investment can play in personal finance, many Americans fail to save as much as they should, which can leave them dependent on credit cards and other forms of debt if they need to access some additional money quickly. More information about credit card debt and the influence of the wider economy on the finances of the individual can be found on the usdta.org website.