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.

Wall Streeters Lose $2 Billion In 401(K) Bet On Own Firms [Bloomberg]

* 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.

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Comments (44)

  1. Posted by BigFatSlob | July 9, 2012 at 4:52 PM

    see eff ehhhhhh

  2. Posted by John | July 9, 2012 at 4:53 PM

    You know Matt, you actually have a really good idea here. Instead of taking the CFA 2 exam, start a hedge fund and do exactly the opposite of what all other hedge funds do:
    1) Blog the fun you had getting the fund created.
    2) Let the readers name it. I vote for Awsome Ninja Hedge Fund of Death.
    3) Take cash inflows through paypal.
    4) Pay out with illiquid Dealbreaker fleece pullovers.
    5) Short everything Paulson goes long on.
    6) Tell us what you are buying before you buy it — we can mock you bad decisions unti they succeed then you can gloat. I suggest you let Bess pick the company names based on their awsomeness, then you either short them, go long or some other nonesense..
    7) Post a no-bullshit quarterly news letter. Something like we gained 17% this quarter, but we have no Idea why.
    7) Profit!

  3. Posted by Guest | July 9, 2012 at 5:03 PM

    …….*starts slow clap*

  4. Posted by Michael Bolton | July 9, 2012 at 5:09 PM

    That's the worst idea I've ever heard in my life, Tom.

  5. Posted by Lowly Assistant | July 9, 2012 at 5:13 PM

    Ummm, pretty sure that the DB fleece pullovers are/would be liquid.

    -Guy That Got A DB Fleece Pullover After Renewing His Gold Member Account With Bess Bucks

  6. Posted by Guest | July 9, 2012 at 5:14 PM

    Mr. Madison, what you've just said is one of the most insanely idiotic things I have ever heard. At no point in your rambling, incoherent response were you even close to anything that could be considered a rational thought. Everyone in this room is now dumber for having listened to it. I award you no points, and may God have mercy on your soul.

  7. Posted by aspiring talent | July 9, 2012 at 5:25 PM

    what Matt left out was UBS's 401(k)s are up roughly prime+1% for the last several years with very little volatility.

    granted, this performance is 100% attributable to member loans to themselves to fund Accord purchases.

  8. Posted by drone. | July 9, 2012 at 5:25 PM

    A few comments to make:

    Employer matches have in general gotten kind of crappy. I used to get 6% of salary, no caps. Then around 2005, they went communist, and I don't even know what it is exactly but I believe they stop contributing at 100k.

    My choices are crap. I get a choice of ~10 funds total. Bonuses that are paid out into the 401k are automatically put in the company stock fund. Even if my match was better, I would still rather have it in an IRA brokerage account where I can buy just about any security or fund that exists.

    There used to be pressure to keep your bonuses in the company stock fund. I never listened to any of that crap, and I have heard a lot less of that talk since the crisis, but I am sure a lot of guys still do this thinking that their boss can somehow see how much stock they own and their promotions depend on it.

    Getting out of the company stock fund is kind of a pain. I feel like more often than not, there is a blackout on trading them. It DOES look kind of bad when you have a weekly reminder to "check if its ok to dump your company's dogshit stock."

  9. Posted by Michael Scarn | July 9, 2012 at 5:30 PM

    Wait a minute, forget that othet stuff, there are DB fleece pullovers?

  10. Posted by investorcluzo | July 9, 2012 at 5:40 PM

    the average GS account is ~2x that of the next largest (MS) 401k and they hold the smallest percentage of company stock. other than that…

  11. Posted by drone. | July 9, 2012 at 6:23 PM

    I would be interested to see what GS's historical contribution rate was. When I worked there, I don't recall them ever forcing or defaulting any funds into GS stock, like my current employer does, who is also discussed up there. I also don't recall any pressure to put any money into GS stock, unlike some guys I knew at Lehman, some of whom had pretty much their entire net worth invested in LEH.

    I would still think the largest driver of this chart is the employer match. GS was fairly generous if I remember right, and would actually just throw profit sharing money in there, regardless if you made any contributions yourself.

  12. Posted by PermaGuestII | July 9, 2012 at 6:31 PM

    So how does the media reconcile the "finance people need to eat their own cooking/have skin in the game" rant with the "look how stupid finance people are: all their money is invested in stock of their own companies" rant?

  13. Posted by Guest | July 9, 2012 at 6:34 PM

    401k's are for pussies.

    -Stuart "RNMAKER" Goldberg

  14. Posted by Anonymous | July 9, 2012 at 7:48 PM

    I diversify with a two stock portfolio: coke and hookers

    -E. Spitzer

  15. Posted by leeminbrahs | July 9, 2012 at 7:47 PM

    I diversify with a two stock portfolio: coke and hookers.

    -E.Spitzer

  16. Posted by DV01?? | July 9, 2012 at 8:06 PM

    What's diversify?

    -JPM Credit risk analyst

  17. Posted by Financial Samurai | July 9, 2012 at 8:28 PM

    A company match is better than a slap in the face!

  18. Posted by Guest | July 9, 2012 at 9:48 PM

    401k's are for poor people.

    -Ron Perelman

  19. Posted by pretzel logic trader | July 10, 2012 at 1:23 AM

    is choosing between your mom and your sister

  20. Posted by Sell It | July 10, 2012 at 8:55 AM

    You must have a huge dick.

  21. Posted by Financial Samurai | July 9, 2012 at 8:26 PM

    My 401K is tiny compared to the income and savings I have elsewhere.

    It's a fun exercise to look at the 401K, but when you have an upper limit of 17,000 pre tax per person, and incomes are indeed 360K on average, this exercise doesn't give readers enough statistical insight.

  22. Posted by Jyoti Ballabh | July 10, 2012 at 9:09 AM

    It's a very interesting insight into the 401K status of the investment bankers on the Street but you have to look into the more factual data instead of turning the whole thing into a sybaritic gabfest. Diversification of a portfolio is easier said than done ever for an IB'er. Stacking your low dividend volatile equities in the taxable bracket and stocks options with puts in 401Ks will always stand the test of time.

  23. Posted by Guest | July 10, 2012 at 9:21 AM

    I re-allocated my 401(k) yesterday to pass the time… It also served as a friendly reminder to continue to bust my ass because if that is what I need to use when i retire i am going to have a make a small to largeish lifestyle adjustment.

  24. Posted by Guest | July 10, 2012 at 9:22 AM

    Yes, apparently "I 'violently' heart Dealbreaker"….I was praying for one during the FB call the close.

  25. Posted by Alpha Dog | July 10, 2012 at 9:30 AM

    ** It’s really $143,014 but the anagram was too hard to pass up.

    Technically, 104K 401(K) is not an anagram but closer to a palindrome. A palindrome is a word or number that reads the same backwards or forwards, like "Bob" or "012210." An anagram is a rearrangment of the letters in one word to form a new word. Morgan Stanley anagrammed is "strangely moan," while Goldman Sachs becomes "smog and clash."

    Guy whose grasp of secret meanings didn't help his 401(k) last year

  26. Posted by Guest | July 10, 2012 at 10:23 AM

    “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.”

    WTF? *Writing* puts on held stock makes no sense. I’d expect any IB drone holding company stock to know that one would buy puts to hedge the downside, or write covered calls to generate income, or sell the stock and write cash-covered puts, so I’ll assume this is an error in reporting.

  27. Posted by güest | July 10, 2012 at 4:15 PM

    Fun Fact: Dyslexia is an anagram of "sexy ladies"

  28. Posted by Lloyd | July 10, 2012 at 7:25 PM

    When I heard that Id have a 401k starting the job, I thought Id get 401k.

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