It’s 2026. Do You Know Where Your IRA Is Invested?

On this episode of The Long View, Andy Reed, head of behavioral economics research in Vanguard’s Investment Strategy group, discusses how investors are left with uninvested funds, what it means to be “maximizing versus satisficing,” how investor behavior shifts as we age, and how he thinks artificial intelligence could impact financial advice.

Here are a few excerpts from Reed’s conversation with Morningstar’s Christine Benz and Amy Arnott.

How Investors’ IRAs Can Get Stuck Sitting in Cash

Christine Benz: I wanted to follow up on the point about people holding cash in their long-term investment accounts. You’ve written about problems with people holding cash in their IRA rollovers, where people sometimes have done the rollover, it’s come over from a 401(k) or something like that. But then the money sits there uninvested. Can you talk about why this happens? And have you found any good ways to keep people from making this mistake, which presumably can cost them a lot of money if they don’t get the funds invested in something with long-term growth potential?

Andy Reed: Absolutely. The first thing I have to do is admit that I did this at least once in my life. So, maybe I’m not the right person to opine on the way to solve it. But look, it’s inertia. I think that it boils down to inertia. The fundamental question in a lot of behavioral finance in the world of investing is, “What happens if you do nothing?” We’re very focused on what happens when investors do something, whether that’s making a risky bet or overreacting to the market. But the reality is that the vast majority of time, almost every investor is doing nothing with respect to their portfolio.

Now, in the world of IRA rollovers, if you do nothing, chances are, if the money rolled over as cash, which is incredibly common, it’s going to stay in cash. And what our research showed is that it stays in cash and it stays in cash and it stays in cash. And for many investors, it stays in cash for seven years or longer, especially those who are younger, which is quite painful because they have the longest time horizon, they should have the lowest amount of cash, and those who have smaller balances.

Now, we were also asking ourselves, well, why? So, we identified the “what.” A ton of money sitting in cash after rollovers for a very long time. We identified the “who.” It’s younger people, it’s lower balances. And to figure out the “why,” we just asked them. We did a survey. So, we sent out the survey to hundreds of investors who had rolled over or contributed and then left it in cash. And we asked them—well, first we actually asked them, do you know how your IRA is invested? Because we didn’t want to spill the beans. And a lot of them thought that it was invested either in the market, in the stock market, or a mix of stocks, equities, cash, etc. And very few of them actually realized that it was sitting entirely in cash. So that was the big aha, was that they don’t even know that they’re sitting in cash.

And then we said, this may come as a surprise to you, but our records show that you’re sitting entirely in cash in your IRA. Why is this? And most of them said it wasn’t intentional. They either didn’t realize. They meant to do it—so, they procrastinated—but they never got around to it. Or a number of investors actually told us they thought it was automatically invested. So, in other words, they thought the IRA worked like the 401(k). So that was a big aha for us. And we realized that, OK, well, if we want to solve this cash-drag problem in the IRA space, which has already been solved in the 401(k) space, let’s just make IRAs look like 401(k)s. So, we’ve been advocating for a policy change to enable—we’re kind of referring to it as—the IRA QDIA. So, a default investment option in IRAs that’s better than cash because cash is the current default and something like a target-date fund, and our research shows that the average investor would benefit to the tune of six figures in additional retirement wealth if they were defaulted into a target-date fund when they do a rollover versus defaulted into cash.

How Defaults Fight the Most Powerful Force in Behavioral Finance

Christine Benz: I wanted to follow up. I have a number of things I want to follow up on. But the point about inertia, is it possible that it’s like the most underdiscussed force in behavioral economics that people are busy, lazy, ultimately, this isn’t super fascinating for a lot of people. Could that explain a lot of what people do?

Andy Reed: I think so. I like to joke that inertia—nothing is the most powerful force in behavioral finance. That’s what inertia is. It’s nothing. It’s doing nothing. I have asked some prominent behavioral economists because I think the flip side of that is, if inertia is the most powerful thing, then defaults matter more than anything else we could do to change behavior. And it turns out the defaults are incredibly powerful. If you look in the 401(k) space, plans with automatic enrollment, the participation rates are way higher across the board, especially for young people, than plans with voluntary enrollment. It’s somewhere on the order of 90% participation versus 60%. You see it in the domain of organ donation. There’s this classic study by Eric Johnson and Dan Goldstein, and it’s called Do Defaults Save Lives? And it’s been cited thousands of times. And they compared countries that have opt-in versus opt-out organ donation schemes. And if you took two neighboring countries, I think it was Germany and Austria, one with opt-out, one with opt-in, I mean, the participation rates were basically close to 100% in one case and closer to zero in the other case. So, defaults are so incredibly powerful because inertia is so incredibly powerful.

But as you alluded to, inertia is not very exciting. People like talking about something. It’s hard to talk about nothing. But it is something that we, as an organization, are very focused on—how do you set the right defaults? How do you create a system such that an investor could fall asleep for 40 years and wake up in retirement and be in great shape? That’s the dream scenario. We’re a long way away from that, but I think there are some great opportunities on the horizon.