Investments: The Rise of the 401(k) Investor
Americans’ retirement savings have become increasingly tied to the fate of the stock market. Workers across nearly every age group are investing large portions of their 401(k)s and other employer-sponsored retirement plans in stocks. According to Vanguard data reported by The Wall Street Journal, workers in their late 30s had 88% of their 401(k) assets invested in stocks in 2024, up from 82% a decade earlier. Even workers in their early 60s that were approaching retirement had an average stock allocation of 60%, up from 57% ten years earlier. Much of this investing happens automatically. Every pay period, millions of Americans defer a portion of their paycheck to a retirement plan, often flowing directly into stock funds or target-date funds. It is a simple and consistent process that oftentimes requires very little effort. Over time, this system has made participation in the stock market a normal part of saving for retirement, with this relationship between retirement savings and the stock market being decades in the making. With the introduction of Section 401(k) to the tax code through the Revenue Act of 1978, the modern 401(k) system that we know today began to take shape and really gained momentum in the early 1980s. Before the rise of these plans, defined-benefit pensions played a much larger role in retirement, placing the responsibility for funding and investing retirement assets primarily on the employer. As 401(k)s became more common, that responsibility increasingly shifted to employees, giving millions of Americans direct exposure to financial markets. The explosive growth of the 401(k) has also coincided with a remarkable period for stocks. While the market has certainly experienced setbacks, including the “lost decade” of the 2000s, equities have produced substantial long-term wealth for investors. Historical return data shows that stocks have significantly outperformed Treasury bonds over long periods, although they have done so with greater volatility. There is also an interesting long-term implication of this for the market itself. Every pay period, billions of dollars in retirement contributions are automatically directed into 401(k)s and similar employer plans, with a significant portion ultimately invested in stocks. These consistent contributions can provide a recurring source of demand for stocks regardless of the headlines or short-term market sentiment. While these inflows do not guarantee rising stock prices, the continued growth of retirement savings and automatic investing can be viewed as one structural tailwind supporting the stock market over the long term. Ultimately, the rise of the 401(k) helped transform investing from something many Americans observed from the sidelines into something millions participate in with every paycheck. As long as Americans continue working, saving, and consistently contributing to retirement accounts, those contributions can provide a steady stream of capital into financial markets. For individual investors, the lesson is similar, as consistent contributions, adequate diversification, and the discipline to remain invested through both up and down markets can be powerful drivers of long-term wealth.
Sources: WSJ – 8/14/2025
Planning: Emergency Fund
A common rule of thumb is to keep three to six months of savings in an emergency fund to cover living expenses and debt payments. However, the right amount often depends on the circumstances. For a dual-income household where both spouses earn similar incomes and have stable jobs, having three months of living expenses on hand may be sufficient. If something were to happen and one spouse were to lose their job, the income from the other spouse would still be able to cover the majority of living expenses while the emergency fund would fill the remainder of the gap. On the other hand, a single-income household could benefit from having six months of living expenses saved up in reserve, as the loss of that income could have a much greater impact. A larger emergency fund may also be appropriate for someone who is self-employed, income varies from year-to-year, or works in an industry where finding a job could take longer. These funds should be kept somewhere both safe and accessible, such as a high-yield savings or money market account. Ultimately, an emergency fund provides flexibility to handle the unexpected without taking on debt or being forced to sell long-term investments.
This material is provided for informational and educational purposes only and should not be construed as personalized investment, legal, tax, or accounting advice. Advisory services are provided only pursuant to a written advisory agreement. Information contained herein has been obtained from sources believed to be reliable; however, we do not guarantee its accuracy or completeness.
