two women employee enjoying work.

How to promote long-term savings in an era of meme stocks

If you’re a human resources professional dedicated to helping employees methodically save via your company’s workplace retirement plan, then watching the investor mania around meme stocks can be unnerving.

Meme stocks are stocks that catch fire on social media—their share prices surge as interest piques in the company, often for issues unrelated to business fundamentals or the economy.

The rise of GameStop earlier last year offers a prime example. The company’s share price skyrocketed from $17 in early January to past $347 near the end of the month, spurred by chatter on a Reddit message board. New investors swarmed the stock in an attempt to foil hedge funds that had bet against the company.

While it’s fascinating to watch, the inherent volatility of meme stocks flies in the face of the savings strategies promoted by most plan sponsors. However, the trend may provide an unexpected benefit by giving plan sponsors a chance to educate employees (especially younger ones) about saving and investing in general. Capitalize on the curiosity, and you may transform one-time meme stock pickers into long-term savers.

Meme stock mania: what is a meme stock?   

Like other hot stock, the share price of meme stock can increase and decrease in price in a short amount of time and with little warning. What makes these investments unique is the price fluctuations are driven by social media and may not connect with anything occurring within the company, market or broader economy. Case in point: Gamestop’s December 2020 earnings report wasn’t great—the company’s sales were down 30% from the previous year—and yet investors drove the price up just weeks later.1 

For meme stock investors, the headlines and hype around a company are enough to spur them to action. That same excitement can also provide an entry point for plan sponsors to help educate employees about financial planning, investing and saving.

A study by FINRA showed 38% of investors who opened at least one non-retirement account in 2020, which is when meme stocks took off, previously did not have a taxable account.2 This suggests many were new to investing. What’s more, research by Public app reveals 76% of investors who purchased meme stocks went on to diversify their portfolios.3

Plan sponsors can use interest in meme stocks to promote savings  

Excitement over a specific meme stock is usually short-lived, as some investors attempt to time the market for big wins while others lose out. But plan sponsors can use the momentum generated to connect with employees and increase plan engagement in more ways than one.

Spark conversations about long-term investing

One solution is to work with your retirement plan provider to initiate email and content campaigns highlighting the benefits of investing via employer-sponsored retirement accounts. Educate employees on the role of tax-deferred savings, the power of compounding returns within plans, and how small investments today can lead to large nest eggs come retirement. Voya makes this easy with a suite of helpful tools.

myOrangeMoney

Voya’s myOrangeMoney interactive educational experience allows employees to easily model different savings scenarios through the lens of compound interest. By using the interactive slides, myOrangeMoney can help employees see how relatively small, pre-tax investments can build over time and make a big difference in retirement. 

Saving and investing with HSAs

Another opportunity is to discuss how strategically saving and investing through tax-advantaged health savings accounts (HSAs) can help employees build a reserve for qualified medical expenses in retirement. An HSA is a tax-advantaged savings account, with benefits that include: 

  • Pre-tax contributions
  • Earnings and interest on investments are tax-free
  • Any withdrawal for a qualified medical expense is tax-free 

These strategic benefits make HSAs a powerful saving tool. And Voya HSA account holders with $2,000 or more in the account can even choose to invest the funds.  As with any investment, there are risks: make sure to fully explore those risks before choosing to invest your balance.

In the end, educating employees about their strategic long-term options may help save them from the roller coaster ride of meme stock investing.

Reiterate the importance of portfolio diversification

Meme stocks showcase the peril of having all your eggs in one basket. When the stock is riding high, then investors may be doing well; but all it takes is one big dip, and the losses are significant. As plan sponsors know, the ability to diversify investments within a retirement plan is critical for mitigating losses and optimizing returns.

Use this opportunity to illustrate to plan participants why diversification matters and the benefits it provides. For instance, you can show employees the returns on various allocation models as compared to the returns on just one asset class (or in the case of meme stocks, just one stock). And if an employee isn’t appropriately diversified, we will automatically nudge as a part of our personalized messaging journeys.

Of course, while diversification and asset allocation can be helpful, they do not assure or guarantee better performance or protect against losses in a declining market. They are, however, well-recognized risk management concepts.

Showcase products and services that offer access to high-growth sectors

Part of the excitement around meme stocks is the potential for investors to catch the upside of a hot investment. Employer-sponsored retirement plans can offer similar opportunities — in a risk-reduced way. For example, re-introduce employees to your investment options, including funds focused on technology, high-growth stocks or emerging markets. You can also educate participants on the potential benefits of managed accounts.

Professionally-managed accounts use the retirement plan’s core investment menu and provide participants with personalized investment advice, retirement income planning and payout strategies. Perhaps — even more importantly — most managed account solutions offer advice and one-to-one discussions as well as education and outreach.

This engagement is critical to retirement planning, increased savings and income planning. In the end, utilizing a managed account service can potentially be beneficial for plan sponsors and employees of all ages alike: 

  • Managed accounts provide the plan sponsor protection as the outside 3(38) investment manager assumes fiduciary responsibility for investment decisions and allocations.
  • 51% of all managed account participants increased their savings after enrolling in the service.4 
  • 29% of all managed account participants significantly improved their retirement income forecast. 5 

Meme stocks may become a regular part of investing for Millennials and Gen Z. And while they’re volatile on their own, they’re stoking curiosity in younger investors that can lead to increased engagement. Take the opportunity to showcase the advantages provided by your retirement plan, and you just may turn that excitement for investing into a healthy savings habit.

Reach out to your Voya Relationship Manager to learn more about education and engagement strategies. 

Read more articles: 

  1. Unlocking the natural connections between health benefits and retirement savings offerings
  2. The future of financial wellness: Actionable insights to support increasing health and wealth needs of working Americans
  3. Pay transparency: Empowering and supporting employees' financial wellness

References

1. https://abcnews.go.com/Business/gamestop-timeline-closer-saga-upended-wall-street/story?id=75617315

2.  https://www.finra.org/media-center/newsreleases/2021/new-research-global-pandemic-brings-surge-new-and-experienced-retail

3. https://www.irmagazine.com/technology-social-media/meme-stocks-gateway-serious-investing-says-publiccom

4. Financial Engines Sponsor Provide Report, 2019

5. Financial Engines Sponsor Provide Report, 2019  

  

This information is provided by Voya for your education only. Neither Voya nor its representatives offer tax or legal advice. Please consult your tax or legal advisor before making a tax-related investment/ insurance decision.

Health Savings Accounts offered by Voya Benefits Company, LLC (in New York, doing business as Voya BC, LLC). Custodial services provided by WEX Inc.

This highlights some of the benefits of a Health Savings Account. If there is a discrepancy between this material and the plan documents, the plan documents will govern.  Subject to any applicable agreements, Voya and WEX Health, Inc. reserve the right to amend or modify the services at any time.

The amount saved in taxes will vary depending on the amount set aside in the account, annual earnings, whether or not Social Security taxes are paid, the number of exemptions and deductions claimed, tax bracket and state and local tax regulations. Check with a tax advisor for information on whether your participation will affect tax savings. None of the information provided should be considered tax or legal advice.

Investments are not FDIC Insured, are not guaranteed by Voya Benefits Company, LLC (in New York, doing business as Voya BC, LLC), and may lose value. All investing involves risks of fluctuating prices and the uncertainties of return and yield inherent in investing. All security transactions involve substantial risk of loss.


CN1850695_1123