When it comes to saving for retirement, perceptions are just as important as reality. Decisions based on inaccurate information can be costly – both for younger generations who could see the impact compound over time and for older generations who have less time to make up for losses.

A survey commissioned by American Funds from Capital Group revealed that investors of all ages aren’t fully aware of the fact that index funds offer no protection from market drops. Although the majority of the 1,200 investors surveyed said they consider protecting against market declines a key priority, only 54% said they were aware index funds exposed them to full market downturns.

Baby Boomers in particular were the most adamant about the importance of protecting their assets in declining markets. Yet they were also the least likely to see index funds as riskier for those with less time to recover their savings from a downturn.


And while 64% of respondents said they would feel more comfortable investing in a fund where the manager invests his or her own money, only about one in five people have ever heard of “high manager ownership.” Just one in 10 said they consider it an important factor when selecting a mutual fund.

These findings highlight a potentially costly mismatch between what investors want and what they actually do. Research by Capital Group shows mutual funds where the manager invests his or her own money has historically been a strong sign in helping identify funds that have outpaced their benchmark index.

“Every generation is interested in achieving above-market results over time,” said Heather Lord, Head of Strategy & Innovation at Capital Group. “But our research shows investors have blind spots.”

Investors of all generations want higher returns, but each generation is a little bit different in their investing outlook and approach.

Habits Are Shaped by Formative Years

Millennials have gotten the message that they need to start saving for retirement. Almost 60% of Millennials (those ages 18 to 34) began saving for retirement before they turned 25. That’s double that of the baby boomer generation.


This yearning to save may be driven by the 2008 financial crisis, which occurred during the formative years for many Millennials. Older Millennials may have seen their own assets plunge, while younger ones may have watched their parents’ savings disappear. The entire generation saw a shrinking of job opportunities and earnings potential.

That impact lingers. When asked “what keeps you up at night,” one out of every three Millennials said their top financial concerns were not being able to save enough for the future.

Asked the same question, most Gen Xers said having enough money to retire with peace of mind topped their list. That generation is also the most skeptical of those providing financial advice and least likely to seek out their support, the survey showed.

Baby Boomers, many of whom rode a bull market into retirement, are the most optimistic generation. More than 70% of retired boomers said they have more income than their parents did. And half retired earlier than their parents. This is also the generation that trusts a long-term approach to investing more intuitively. Nearly two-thirds of boomers say sticking with an investment strategy makes them feel smarter.

What Does The Future Hold? It Depends Who You Ask

These varying experiences shape outlooks just as much as habits.

Baby Boomers have the lowest expectation about future market returns, even as they maintain the strongest view of their retirement. Millennials and Gen Xers, on the other hand, are not so sanguine about their own retirements, though they expect market returns to be strong.

To achieve better results, though, investors of all ages said they would consider paying more. Almost 70% of those surveyed said they’re willing to pay for funds with a track record of beating their benchmark consistently as long as those fees are low.

The Bottom Line

Understanding an investor’s generational experience is essential to understanding what investment and retirement strategy will work for them.

That means learning about both their perceptions and their biases. Education is key, and communication between financial advisors and investors is essential to help close the gaps in knowledge.

To read more, download the complete Wisdom of Experience report.