Steve Forbes Interviews P. Brett Hammond, TIAA-CREF chief investment strategist
(Click above to open video in New Window)
My Notes on the Interview:
Preinterview – A Republican complains about a Democrat. Shocking.
3:08 – Reframing 401(k)s, annuities (income) vs. nest eggs
5:05 – Differentiate the goals of your money
6:05 – Variable annuities explained (riskier than fixed annuities, but chance for higher payouts)
8:00 – Streamlining 401(k)s (autoenroll, assett allocation, annuities)
9:30 – Average contribution rates of 6-8% is not enough. Aim for 17%. (Increase your auto contribution)
10:30 – Why you should default into a lifecycle fund
11:30 – The paradox of choice affecting 401(k)s
12:20 – Inertia. Or people are lazy
14:30 – Pick the best company in a sector rather than sector. I disagree. I don’t think anybody should be picking their own stocks. Knowing just enough to be dangerous is worse than knowing nothing
16:20 – Look at Management. Buffett & Peter Lynch mentions investing in companies that are so good, that an incompetent executive won’t mess it up, as eventually somebody incompetent will be in charge
21:00 – Macroeconmic Viewpoints. Feel free to skip this
25:20 – “Bold Prediction: Euro as new standard.” Feel free to skip this
Thoughts:
Although inertia plays a role in why people aren’t more proactive when it comes to 401(k)s, behavioral economists have long proven that people feel the pain from losses much stronger than the joy of gains. So when the average small investor thinks about investing, he focuses more on what he might lose rather than on what he might gain. This is why left to their own devices, people tend to buy high and sell low.
This is also why people tend to adopt their company’s default option when it comes to selecting a 401(k) plan. Just making an option the default makes people think of it as superior to the other choices.
Extra Reading:
Loss Aversion and Status Quo Label Bias
