401(k) study: Help can improve performance by 3 pct.

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The real secret to investing for a successful retirement is a globally diverisifed portfolio and disciplined rebalancing. Your retirement account should be managed much like a pension fund. Exclusively providing professionally managed portfolios will increase results and reduce anxiety.

REBALANCINGFailure to periodically rebalance a portfolio can also hurt returns. By rebalancing, investors adjust the allocation between stocks and bonds in their portfolios to ensure their investments reflect their appetite for risk. For instance, in a market where stocks surge, a portfolio can become too heavily invested in stocks unless the accountholder moves some of that money from stock funds into bonds or other assets.

Failure to rebalance after a market surge or drop leaves a portfolio at risk to underperform.

COMPLACENCY

A large segment of 401(k) accountholders have historically been complacent about their investments, failing to do anything with their account for years.

“Rather than do something wrong they’re just not doing anything,” said Pamela Hess, director of retirement research at Aon Hewitt. “With all the volatility in the last few years, I think folks don’t know what to do and a lot are just doing nothing.”

More workers with 401(k) accounts are using some form of help, Hess said. An earlier study of 401(k) accounts indicated about 25 percent of workers used help with their investments in 2009. As of the end of 2010, about 30 percent of workers were using help.

Hess points out it, however, that still means about 70 percent of workers don’t get help.

“This study really quantifies the fact that he gap between doing things on your own and what you can get with professional help does in fact get substantially wider during periods of volatility and economic stress,” Jones said.

While acknowledging that some forms of help including managed accounts carry higher costs, Jones said the difference in performance outweighs the increased cost.

Managed account fees typically range from 0.20 percent to more than 1 percent of the account balance. Target-date fund fees can range from around 0.18 percent to more than 1.5 percent of assets.

Professionally managed accounts provide most employees with the best opportunity to successfully retire. This assumes the employees remains disciplined and consistently contributes to their account.

Please comment or call to discuss how this would affect you and your employees.

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