Scars from Financial Crisis Still Raw

A majority of Americans say they have not fully recovered financially from the Great Recession of 2008.

Although the economy is booming and the stock market has more than quadrupled in value since the financial crisis of 2008, 65% of Americans say they have not fully recovered financially, Betterment learned in a survey.

Seventy-nine percent say they don’t fully understand what happened during or what caused the financial crisis. Fifty percent do not think the S&P 500 has gone up in value in the past 10 years, and 18% think it has declined.

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Eighty-three percent do not think Wall Street is any more ethical than it was in 2008. More than one in four people have stopped saving for retirement or contributing to their 401(k). Two out of every three people say they are saving less than they did in 2008. However, 29% say they are making  a concerted effort to save more today than they were in 2008.

The survey also found that those who invested in 2008 and lost money are more likely to feel recovered and optimistic. Eighty percent of people who invested money in 2008 lost money but have since felt that they have recovered. Forty-one percent feel fully recovered.

Half of Americans are investing as much or more than they did 10 years ago, and nearly a quarter consider themselves even more risk tolerant than they were in 2008.

“The data reinforced a lot of what we already feel and see on Wall Street,” says Dan Egan, vice president of behavioral finance and investments at Betterment. “People are slow to trust big banks again, and are understandably worried this will happen again. But what we find extremely hopeful is the staying power of those who rode the wave and came out on the other side. People who were investing in 2008 felt the losses, but also witnessed the recovery. They know another dip is inevitable, but know that as long as they don’t get greedy or fearful, the rewards outweigh the costs.”

Market Cube conducted the survey of 2,000 people for Betterment in July and August.

Advocacy Group Fighting Tax That Could Hit Retirement Plans

While an analysis by Modern Markets Initiative focuses specifically on public pension funds, the company notes that the tax will affect all defined benefit (DB) plans, individual retirement accounts (IRAs), defined contribution (DC) plans and individual investors.

The Inclusive Prosperity Act of 2017 has been introduced in the Senate and includes a financial transaction tax (FTT).

According to Modern Markets Initiative (MMI), the FTT would be applied to every stock traded, including a 0.5% rate on equity, a 0.1% rate on debt and a 0.005% rate on derivatives. MMI, an education and advocacy organization, which is strongly opposing this tax, has done an analysis of what its costs would be for pension funds and all investors.

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While MMI’s analysis focuses specifically on public pension funds, an op-ed by CEO Kirsten Wegner notes that the tax will affect all defined benefit (DB) plans, individual retirement accounts (IRAs), defined contribution (DC) plans and individual investors.

For example, using asset allocations in 2015 for the California Public Employees’ Retirement System (CalPERS), as well as published data about its trades, MMI calculated the FTT would be $508,374,705. “That’s not a typo—CalPERS and the hardworking public employees it invests for would have paid more than half a billion dollars in tax in 2015 alone,” Wegner writes.

MMI’s analysis also finds the Federal Thrift Savings Plan would be hit with roughly $250 million in annual fees, and a hypothetical local public pension fund portfolio with $2 billion in assets would be on the hook for an additional $4 million in an average year.

For each pension fund evaluated in the report, analysts have provided detail on the asset class exposure, calculation methods, spread costs and other considerations related to that institution.

“Our detailed analysis shows that the FTT’s negative impact on pensions and institutional investors would be substantial in terms of real dollars,” says Wegner. “Policymakers must now consider how any FTT would ultimately boomerang back on individual investors and pensioners, essentially cutting into their retirement income and savings.”

She adds: “One of MMI’s key principles is transparency, so it was very important for us to share our full analysis with the public. We fully intend to be the industry’s voice when it comes to education and pushing back on the FTT.”

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