Opinion: More Americans Have $1 Million Saved For Retirement Than Ever Before

Here's something to be excited about: more Americans than ever before have $1 million or more in their retirement funds. According to the latest numbers from Fidelity Investments, this is the case.

According to the Boston-based investment firm, the number of seven-figure 401(k) accounts surged by 84 percent to 412,000 in the year ended June 30, while the number of seven-figure IRAs jumped by more than 64 percent to 341,600.

The number of accounts with a balance of $1 million or more increased by 74.5 percent overall, however, it's unclear how many people this represents because investors sometimes have many accounts.

While this is fantastic news, it should not be surprising: The stock market has been gradually increasing in recent years. The internationally renowned financial benchmark, the S&P 500 SPX, 1.58 percent, has virtually quadrupled from the epidemic low in March 2020, as we wrote last week. Take into account the following: If you had invested in an S&P index fund, you might have quadrupled your money in a year and a half without breaking a sweat.

It simply doesn't get much better than this.

It's difficult to say if investors have quadrupled their money from the epidemic low because Fidelity's data only covers the 12 months ending June 30. As a result, I did some math, but even before I did, I assumed the answer was no, because few people, even Fidelity's own highly compensated portfolio managers, can consistently surpass the benchmark.

In reality, if you compare apples to apples, the S&P 500 gained roughly 39% in the year ending June 30. During the same period, Fidelity states that its average 401(k) balance rose by "only" 24 percent, while its average IRA value jumped by 21 percent. It's reasonable to believe that the performance disparity was equal from March 2020 to August 2021.

But does it make a difference? It's incredible to witness a year-over-year increase of 24% or 21%. And there's a solid justification for not meeting the requirement: Because, unlike the S&P 500, as an investor, you shouldn't deposit all your eggs in one basket.

One of the fundamental laws of excellent long-term investing is diversification or spreading your money around. Stocks, bonds, commodities, real estate, and even a little amount of cash on hand are all possibilities. There are subclasses inside each of these asset classes: What are the similarities and differences between large-cap, mid-cap, and small-cap stocks? Which is more important: growth or value? Is it better to stay in the United States or travel abroad? Europe's rapid expansion, Asia's rapid expansion, Latin America's rapid expansion, or Africa's rapid expansion? When it comes to bonds, you'll have the same alternatives. Bonds issued by the government, perhaps? Corporate? Munis? Is it better to invest in investment-grade or junk bonds? Is it better to invest for the long-term or the short-term? The possibilities are infinite.

My 401(k) and IRA funds haven't doubled in value since the pandemic's low point, but they're both up enough to make me happy — and the fact that I'm well-diversified means I can sleep soundly at night. Have you gotten a good night's sleep? That's a fantastic return on my investment.

Because you never know when one asset kind may collapse, diversification is crucial. I don't know about you, but I had no idea we'd be slammed by a bear market in early 2020, and I couldn't have anticipated — nor could anyone else — that it would just last 33 days. According to Yardeni Research, the average length of a bear market in the preceding century was 302 days. Half of all bear markets lasted longer than that, according to the median. When the water turns dark, having a diverse portfolio comes in handy.

The massive gains seen by so many Americans serve as a reminder that it's time to adjust their portfolios. Wise investors always have a strategy, and yours might include investing 70% of your money in inequities. However, because of stocks' great performance, your portfolio may be too reliant on equity funds.

Rebalancing, or returning your plan to a 70 percent equity allocation, is usually a smart idea. Rebalancing your portfolio regularly, maybe once or twice a year is highly recommended by investment consultants, and you should have one if you don't have one. Some of what has done well can be sold, while some of what hasn't can be bought. The idea is to avoid putting all of your eggs in one basket once more.

Then there's the less-than-optimistic news. While the statistics from Fidelity appear to be joyful, they remind me of something that isn't. Even though the 401(k) has been available for a generation, nearly five million US firms do not provide it to their employees. According to a study by the American Retirement Association, this implies that 28 million full-time workers—and another 23 million part-time workers—are at a disadvantage when it comes to retirement savings.

Hundreds of thousands of Americans have million-dollar retirement savings, according to Fidelity's analysis, which I support. Their golden years appear to have a promising future.

Now if we could only reach out to the tens of millions of Americans who have been left behind.