Over the weekend, officials from the Trump administration made the rounds to tackle a tough question: Why spark a trade war that tanks the stock market? Is the administration intentionally subtracting trillions in potential losses from people’s savings?
Treasury Secretary Scott Bessent’s remarks on NBC’s “Meet the Press” were particularly puzzling. He referenced that “most Americans in a 401(k) have what’s called a 60/40 account,” without much clarification. He continued by stating these accounts “are down 5 to 6 percent for the year.”
However, most 401(k) holders don’t have a 60/40 portfolio. Bessent’s comments tend to downplay the risks in individuals’ portfolios and the anxiety they might feel, which could adversely affect their retirement plans if they decide to sell in panic.
Let’s break this down a bit more. A 60/40 fund, in the context of workplace retirement accounts, typically means a mutual fund structured with 60 percent in stocks and 40 percent in bonds or other less volatile investments. These funds often have a target retirement date tailored to when an individual aims to retire.
It’s worth noting that not all of that 60 percent is invested in U.S. stocks, which matters because non-U.S. markets have performed relatively better this year. Bessent is right in saying these funds are faring better than the broader U.S. stock market, which is down about 13 percent.
Still, while many 401(k) investors do choose funds with mixed assets, this isn’t a definitive measure of the nation’s retirement investments. According to data from the Employee Benefit Research Institute and the Investment Company Institute, by the end of 2022, 68 percent of 401(k) participants invested in target-date funds. However, these funds rarely adhere to a 60/40 balance; each has a varied stock allocation. As participants age, the stock percentage typically decreases to reduce risk, meaning younger investors generally hold more than 60 percent in stocks in these funds.
The Investment Company Institute notes that by the end of last year, only 41 percent of 401(k) balances were in hybrid funds like target-date ones. Moreover, 71 percent of all 401(k) assets were in stocks by the close of 2022.
The Treasury Department didn’t weigh in on this matter.
Bessent, in his 60s and financially comfortable, might naturally anchor his perspectives in his current life stage. This often happens when discussing personal finance.
While many employers guide workers toward balanced funds, there are those without access to such support. This includes individuals whose employers don’t offer retirement plans or those self-employed. Bessent himself benefits from an exemplary federal employee retirement plan, filled with affordable target-date funds.
Bessent might personally maintain only 60 percent in stocks, but younger investors in their 20s and 30s allocated nearly 90 percent of their 401(k)s to stocks by the end of 2022.
High stock exposure can mean more volatility now, and that could lead to panic selling, especially for those lacking decades of market experience. Such fear-induced selling could lead to missed future gains if they don’t reinvest at the opportune time.
Moreover, significant market drops can deter young individuals from investing early on. Starting late cheats people out of potential long-term portfolio growth.
Despite the current climate, 60/40 funds offer a strategic advantage. My colleague Jeff Sommer frequently highlights the value of a balanced investment approach. This allocation strategy is a solid choice for most people’s retirement funds.
However, Bessent’s framing of these funds as a comforting constant might overlook the anxiety and tangible losses people face during downturns.
