More Americans have $1 million saved for retirement than ever before

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Here’s some really good news: More Americans have $1 million or more in retirement accounts than ever before. This is according to the latest data from Fidelity Investments.

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The Boston-based investment giant says the number of 401(k) accounts with seven-figure balances rose 84% in the 12 months ended June 30 to 412,000, while the number of seven-figure IRAs increased by more than 64%. increased to 341,600.

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Together, the number of accounts with $1 million or more increased by 74.5%, but it is not clear how many individuals this represents, as investors can have multiple accounts.

This record-breaking figure is now the average 401(k) balance.

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While there’s good news, it shouldn’t come as a surprise: The stock market is on the rise. We reported just last week that the S&P 500 SPX,
-2.27%
The widely viewed investment benchmark- has nearly doubled since the pandemic in March 2020. Think about it: If you had invested money in an index fund that reflects the S&P, you would have doubled your money in a year and a half without breaking a sweat.

Nothing gets better than this.

Since Fidelity’s data covers only the 12 months ended June 30, it is not possible to see whether investors have also doubled their money since the pandemic subsided. So I ran the numbers. But even before I did, I thought the answer was no, because hardly anyone—not even Fidelity’s own highly-paid portfolio manager—can often beat the benchmark.

Sure enough, an apples-to-apples comparison shows that the S&P 500 is up about 39% in the 12 months ended June 30. Fidelity says its average 401(k) balance grew “just” 24% over the same period, while its average IRA balance grew 21%. It is a safe bet that the entire March 2020 to August 2021 period would have shown the same performance gap.

but so what? A profit of 24% or 21% in a year is spectacular. And there’s good reason not to beat the benchmark: Because if you’re a wise investor, you shouldn’t be putting all the eggs in one basket, like the S&P 500, anyway.

Diversification—spreading your investments around—is one of the key rules of successful long-term investing. Spread your bets: Stocks, bonds, commodities, real estate, and don’t forget to have some cash while you’re at it. And within each of these asset classes, there are subclasses: large-cap stocks, midcap and small-cap stocks? Growth or Value? US or international? Europe, Asia, Latin America or the booming Africa? A similar option awaits on the bond. government agreement? incorporated? Munis? Investment grade or junk? Long term or short term? On and on, the options are endless.

My 401(k) and IRA accounts haven’t doubled since the pandemic subsided, but both are enough to make me happy—and the fact that I’m well-diversified means I’m good at night. I take sleep Have a good night’s sleep? This is a good return on my money.

Diversification is vital because you never know when an asset class will fall. I don’t know about you, but I certainly didn’t know in early 2020 that we were about to be slammed by a bear market, nor could I have predicted – and no one else – that it would only last 33 days. Will last After all, going back a century, The average length of a bear market is 302 days. According to data from Yardeny Research. Median means that half of all bear markets lasted longer than that. Being diverse helps when the ocean is rough.

The huge gains that so many Americans have seen are also a reminder that it is time to rebalance their portfolios. Wise investors always have a plan in place, and you probably have stocks that comprise 70% of your stake. But since stocks have performed so well, your portfolio may be a bit heavy in equities right now.

Rebalancing – bringing back 70% of the shares as per your plan – is probably a good idea. Investment advisors — and you should have one if you haven’t — will generally advise you to rebalance on a regular basis, perhaps once or twice a year. Sell ​​a little of the one who did well, buy a little of the one who didn’t do well. Once again, the goal here is to avoid placing too many eggs in one basket.

Now not for the good news. While Fidelity’s data is joyful, it reminds me of something that isn’t. A whole generation after the birth of the 401(k), more than five million employers in the United States still do not offer it to their employees. That means, a study by the American Retirement Association states that some 28 million full-time workers—and another 23 million part-time workers—are disadvantaged when it comes to saving for retirement.

Fidelity’s data shows hundreds of thousands of people with multi-million-dollar retirement accounts, and I say early for them. His golden years are looking good.

Now if only we could do more to help the millions of Americans who are left behind.

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