There is no particular reason to think that people employed on Wall Street should on average be any better than anyone else at managing their own money; talent at selling derivatives or concocting mergers – or at HR or tech support – doesn’t translate directly into talent at picking stocks or timing markets. Certainly it didn’t for me; soon you will be able to sign up for a Dealbreaker Investing Tips newsletter that will give you excellent ideas for things not to invest in. Nonetheless, bankers’ investing failures seem to provide a deeper and more guilt-free schadenfreude than those of tech entrepreneurs or whatever, and so Bloomberg got to point and laugh at some bankers today:
Wall Street employees, who dispense financial advice to individuals and companies, aren’t following a basic investing tenet with their own money: diversification.
Workers at the five largest Wall Street banks saw the value of company stock in their 401(k) accounts, sometimes the biggest holding of those plans, decline more than $2 billion last year, according to annual filings. Those losses don’t include shares received as bonuses.
Hahahaha sort of. As is so often the case, the data that you have is not a good proxy for the data that you want: Bloomberg is looking at bankers’ personal finances through the prism of their 401(k)s, because those are where the data is – you can actually see how much money each employee at each publicly traded bank has invested in various sorts of things, including their own company stock, and how they did last year. So let’s. Here is a chart of 401(k) holdings per employee of the big five banks, broken out into (1) employer stock and (2) everything else:
One thing to notice about this chart is that the average allocations to company stock aren’t that big: the worst offender, Morgan Stanley, has a little under $12k in company stock per employee; Citi and GS are under $2k.*
The bigger thing to notice, though, is that the overall dollar numbers are small. The average Goldman Sachs employee has a $140k 401k**, which is a lot of money compared to some other amounts of money and not a lot of money compared to some other other amounts of money, but is in any case well under the $367k that the average Goldman employee got paid last year. If the average Goldman employee saves even 10% of her paycheck, it will be mostly outside of the 401(k): the contribution limits on 401(k) plans mean that it is basically impossible to work on Wall Street for a long time and end up with a 401(k) that is meaningful in relation to your overall assets.*** There are notable exceptions.
Outside of 401(k)s, and named executives who file Form 4s and tend to own a lot of company stock, you generally can’t tell what people are getting up to in their personal investments. Perhaps on average investment bankers are genius market timers – or way overweight their employers’ stocks – or 100% in TIPS and gold. My experience ranged from a majority who sold employer stock as soon as they got it, to a vocal minority who kept all of it, bought more, and wrote puts on it. (Related moves could be bad both investing-wise and career-wise.)
But if you suspend disbelief a little bit, it is pretty fun to muck around in the 401(k) filings since they do maybe suggest something about investing prowess or prowesslessness. Mostly the latter:
On average, perhaps due to their fondness for owning their own companies’ stock, bank 401(k) plans manage to get returns that are both lower and more volatile than those of the stock market. And the order of this chart is perhaps meaningful, or at least suggestive? I dunno. I’m a pretty simple man but I always kind of figured you put your bonds, your high-dividend stocks, and your other tax-inefficient (but usually not that volatile) investments in your 401(k), and used your taxable accounts for volatile low-dividend equities. If their 401(k)s have swings like this, bankers’ overall investments must be pretty exciting.
* Bloomberg makes it scarier:
Current and former Morgan Stanley employees, who receive company shares to match their 401(k) contributions, held 24 percent of retirement assets in the firm’s stock before last year’s decline, the highest percentage of any of the banks. They lost $570 million in 2011 as the shares plunged 44 percent. JPMorgan employees, some of whom received stock in the company until last year to match retirement contributions, devoted 18 percent of their funds to the lender’s shares at the end of 2010. Bank of America employees put 13 percent of their assets in the bank’s stock, while the figures for Citigroup and New York-based Goldman Sachs Group Inc. were 8 percent and 2 percent, respectively.
Note that they’re looking at December 2010 allocations to own-company stock, before the stocks dropped; I’m using December 2011 latest data. Data is from 11-Ks for the firms here here here here and here.
** It’s really $143,014 but the anagram was too hard to pass up.
*** Also the average employee contribution to 401(k)s at these firms in 2011 ranged from $1,645 at BAC to $6,722 at GS, meaning that a lot of people aren’t getting anywhere close to the limit.