“Set It and Forget It” - Not the Outcome You Thought You’d Get
Morton Stories

“Set It and Forget It” - Not the Outcome You Thought You’d Get

By Bruce Tyson, Wealth Advisor & Partner

“Set It and Forget It” - Not the Outcome You Thought You’d Get

Morton Stories

That sound you heard earlier this month all across America was the clattering of knives and letter openers, dropped to the floor by retirement age investors staring at their quarter-end 401(k) statements.  What had gone wrong with their “set it and forget it” investment plan?


The “set it and forget it” rhyming aphorism is one among of a bounty of rhymes that give our brains an easy path to perceived truth.  These easy paths are known as heuristics, where one might take a shortcut to an answer when time or interest or resources do not allow for a deeper dive.  The first one we all learned was, “An apple a day keeps the doctor away.”  Later, on the golf course, we were told, “Drive for show, putt for dough.”


This tendency to view rhyming statements as more truthful is known as the Keats heuristic, a term coined by two psychologists in a 1999 academic paper.1 The term is drawn from Keats’s poem Ode on a Grecian Urn,2 wherein Keats concludes, “Beauty is truth, truth beauty," where a prettier image or prettier language is perceived to be truer. Academic studies have shown that where two phrases possess similar meanings, a rhyming one will be perceived as carrying more truth:


     “Woes unite foes” is an easier path to the brain than “Woes unite enemies.


     “What society conceals, alcohol reveals” trumps “What society conceals, alcohol unmasks.”


Obviously, this cognitive bias has not gone unnoticed by politicians and corporate marketers. General Eisenhower’s presidential campaign slogan was “I like Ike.”  And before it went out of business in 2019, the Thomas Cook Travel Company’s catchphrase was “Don’t just book it, Thomas Cook it.”


All of which leads us to the phrase the financial press has often used to describe target-date mutual funds: “Set it and forget it.”


Target-date funds (TDF) are most often employed in retirement accounts such as 401(k) plans, where the investor aligns his or her TDF with an expected retirement date.  For example, an investor who turned 45 in the year 2000 might have chosen a “2020 Target Date Fund”—2020 being the anticipated year of retirement at age 65. A fund such as this would begin with a high allocation to the stock market in the early years, and then taper that equity allocation in favor of bonds as the expected retirement year approached.  To quote Investopedia: The asset allocation of a target-date fund thus gradually grows more conservative as the target date nears and risk tolerance falls. Target-date funds offer investors the convenience of putting their investing activities on autopilot in one vehicle.”


A December 15, 2018 article on MarketWatch offered these comments on target-date funds: “A good deal of the money in 401(k) accounts is ending up in target-date funds. In fact, more than half of 401(k) accounts hold 100% of their assets in target-date funds, according to third-quarter data from Fidelity Investments. Target-date funds are investments tailored to an individual account holder’s age and retirement year. It’s essentially a ‘set it and forget it’ strategy because the fund will automatically rebalance itself to align with the investor’s age.”


All that sounds good, but many “set it and forget it” investors retiring this year were shocked to see that their 2020 Target Date Fund was not really “conservative.”  According to an April 9 Bloomberg News article, the three largest TDF providers—Vanguard, Fidelity, and T. Rowe Price—each had half or more of their TDF 2020 allocation in stocks.  T. Rowe Price, at 55% equities, had the highest allocation, and the fund’s return from February 20 to March 20 was a loss of 23%.  The loss figures have diminished somewhat in the intervening market rally, but the risk is that when a retiree sees his or her portfolio drop by almost a quarter, there is a panic moment when some retirees will (and some certainly did) cash out and lock in their losses. Had these funds been on a truly more conservative glide path, the less extreme losses would more likely have kept the otherwise panicked investors in the game.


Even if it does rhyme, there is a certain inadequacy to any “set it and forget it” mentality, particularly when considering how complex and fast-paced the world has become.  We see governments and central banks attempting new, and radical, responses to economic problems.  Just so, thoughtful re-evaluation in the face of changing circumstances should be a part of anyone’s financial plan.


It really is incumbent upon investors to think about (or hire an advisor to help take that deeper dive as to) where we are in economic cycles.  While there will always be a divergence of opinion about the future, it is a fact that the U.S. stock market coming into 2020 had had a 10-year bull market, the longest on record.  And, as cycles actually do occur, one would have observed the above fact and might have reduced equity allocations—certainly on the eve of retirement and the phasing out of a full paycheck.


Bottom Line: When it comes to investing for retirement, the Keats heuristic just isn’t realistic.




1 https://www.sciencedirect.com/science/article/abs/pii/S0304422X99000030

2 https://www.poetryfoundation.org/poems/44477/ode-on-a-grecian-urn

Read Bruce's other articles here: 

The Great Decoupling

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