Insurance Services

Advisory Services

Do You Know What’s in Your 401(k)? If Not, You Should

A recent CNBC Your Money Survey reveals 46% of 401(k) investors are unaware of the specific investments in their workplace retirement plan.¹ 

Considering 401(k)s are most people’s largest asset, this is troubling. 

However, advisors cited in the article argue that this lack of knowledge may not necessarily be a cause for concern. 

Their reasoning? Many employers automatically enroll their workers into a 401(k) plan and put them into target date funds (TDFs). 

Ellen Lander, principal and founder of Renaissance Benefit Advisors Group was quoted in the article saying: “It’s probably better for most people than trying to do it yourself.”² 

The idea of TDFs is that you don’t have to be all that engaged with your 401(k) because the fund will adjust over time based on your proximity to retirement in terms of risk. 

While contributing to your 401(k) is better than not, we respectfully disagree that target date funds are in investors’ best interest – especially those investors who don’t know what’s in their 401(k)s. 

And, instead of telling investors to just settle for investing in a target date fund, 

there is a better way to ensure you’re on track for a prosperous retirement. 

And that solution is professional 401(k) account management.

Keep reading to see why target date funds may not be right for your retirement savings and how professional 401(k) account management may help improve your account performance more than you think.

The Trouble with Target Date Funds

401(k)

Target date funds are popular in part because investors are automatically enrolled in them.

According to the Plan Sponsor Council of America, almost 59% of employers sponsoring a 401(k) plan used auto-enrollment in 2021, up from 47% in 2012.³

Target date funds also simplify the 401(k) investing process for those who don’t want to or don’t have time to engage with their 401(k)s on a regular basis. [Please have the underlined open to the target date funds guide pop up]  

This allows investors to set it and forget it. They don’t have to worry about constructing a portfolio or even managing it. All they have to do is contribute each paycheck and that’s it. 

But there’s a big problem with this: Target date funds fail to take into consideration that not all investors are created equal. 

If you expect to retire in 2050, you’re grouped into a fund with others expecting to retire at the same time. 

Your specific goals and risk tolerance aren’t taken into consideration. 

Instead, the fund you’re in moves its allocation to more conservative mutual fund investments and away from riskier mutual fund investments the closer you get to retirement. 

See the problem with everyone your age having the same investing strategy? 

Another issue is that target date funds don’t always produce the results you expect. 

They often underperform in good markets and do a poor job of managing downside risk during tough markets.

They do not take into consideration changes in the economy, tax policy, trade, earning reports, or investment trends – and may not make adjustments for any of these driving factors that affect investment performance.

Check out Why Relying Only On Target Date Funds May Hurt Future Retirement Account Performance.

How to Maximize Your 401(k) Retirement Savings

401(k)

If target date funds may not help you maximize your 401(k) retirement savings and you don’t want to build and manage your own portfolio, then what’s the solution to grow and protect your money? 

Professional 401(k) account management.

In addition to managing your investments and quarterly rebalancing your 401(k), personalized account management may also help you stay on course to meet your retirement goals and increase returns. 

It may also…

  • Help you identify the fees inside your 401(k) and help you know if you’re paying too much.
  • Take the emotion out of financial decisions – especially during times of geopolitical uncertainty like we’re in right now. 
  • Save you time and effort and allow you to focus on other things in your life knowing your account is taken care of.   

And, most importantly, it may also help you keep more of your hard-earned money because it has been shown to increase 401(k) investors’ returns.

Aon Hewitt and Financial Engines conducted a study from 2006 to 2012 comparing the returns of investors who sought help in the form of online sources or managed accounts to those who managed their 401(k)s themselves. 

The study examined the 401(k) investing behavior of 723,000 workers at 14 large U.S. employers. It showed that investors who received professionally managed help earned higher median annual returns than those who invested alone. 

In fact, participants who had their assets managed by professionals saw an average of 3.32% (net of fees) more in returns annually than those who managed their own accounts.⁴

The study revealed, “If two participants—one using Help and one not using Help—both invest $10,000 at age 45, assuming both participants receive the median returns identified in the report, the Help participant could have 79 percent more wealth at age 65 ($58,700) than the Non-Help participant ($32,800).”⁵

Don’t think 3% can make a significant difference come retirement? Check out the potential of adding 3% more to your 401(k) over time.

401(k)

To see how 3% may improve your 401(k) performance, check out our retirement calculator.

401(k) Maneuver provides professional account management to help you increase your account performance over time, manage downside risk to minimize losses, and reduce fees that are hurting your retirement account performance. 

Our done-for-you, virtual service allows you to keep your 401(k) right where it is while we review and rebalance your account based on your risk tolerance and current market conditions.

We review and rebalance your account for you with the goal in mind of keeping you in what is working and out of what is not.

With 401(k) Maneuver, you can go about your life doing what you love with confidence, knowing we are managing your 401(k) for you. 

See how it works.

Have questions or concerns about your 401(k) performance? Click below to book a complimentary 15-minute 401(k) Strategy Session with one of our advisors today.

Book a 401(k) Strategy Session

Sources:

  1. https://www.cnbc.com/2023/09/07/almost-half-of-401k-investors-clueless-about-their-investments-cnbc.html
  2. https://www.cnbc.com/2023/09/07/almost-half-of-401k-investors-clueless-about-their-investments-cnbc.html 
  3. https://www.cnbc.com/2023/09/07/almost-half-of-401k-investors-clueless-about-their-investments-cnbc.html
  4. https://corp.financialengines.com/employers/FinancialEngines-2014-Help-Report.pdf
  5. https://corp.financialengines.com/employers/FinancialEngines-2014-Help-Report.pdf

.fb-background-color {
background: !important;
}
.fb_iframe_widget_fluid_desktop iframe {
width: 1100px !important;
}