It Doesn’t Take a Nobel Prize Winner
Retirement planning confuses many people, even, it turns out, Nobel Prize winners. Several past winners of the prestigious Prize in economics stumble when it comes to making the financial decisions about their retirements, ordinary Americans are increasingly being asked to make.
“I think very little about my retirement savings, because I know that thinking could make me poorer or more miserable or both,” Daniel Kahneman of Princeton University and winner of the 2002 Nobel Prize told the Los Angeles Times.
Clive W.J. Granger, an emeritus professor at the University of California in San Diego and 2003 Nobel Prize winner agrees. “I would rather spend my time enjoying my income than bothering about investments.”
It isn’t just the out-of-sight out-of-mind attitude that plagues Nobel Prize winners. Even those who should know better, like Harry M. Markowitz, father of the “modern portfolio theory,” who won the Nobel Prize in economics, stumbles when it comes to investing for his won retirement. Despite telling others they should diversify their investments and avoid putting all their eggs in one basket, his own retirement funds were split right down the middle, with half going into a stock fund and half going into a safe but low-interest investment.
“I know its utterly stupid,” George A. Akerlof, of the University of California in Berkley and the 2001 winner of the Nobel Prize in economics told the Los Angeles Times when admitting a significant portion of his retirement nest-egg is in money market accounts.
Not everyone has fallen into the conservative trap, however. Edward C. Prescott of Arizona State University, who shared last year’s Nobel Prize, tried to track the hottest investment trends and found himself caught up in the switching game.
It should be noted that sometimes the conservative approach is the right approach. Douglas C. North, an economist at Washington University in St. Louis and winner of the 1993 Nobel Prize trusted his gut and pulled the funds he had invested in the stock market when he thought it had peaked. It hadn’t yet. Fortunately, he kept his funds in municipal bonds so when the correction came, his retirement dreams didn’t vanish with record highs.
In interviews and emails with the Los Angeles Times, five of 11 Nobel prize winners in economics during the last decade and a handful of others from the 1990’s admit they do not regularly manage their retirement savings.