The 401(k) plan of the future will include model portfolios. Each employee will be automatically put into an age appropriate portfolio. The employee can then chose a different risk level or sign a form and choose their own mix of funds.The 401(k) plan of the future will be more of a pension fund like plan only with better results.

Despite this 4+ decades old report, why do two popular 401k options encourage investors to invest for income when most fiduciaries know (or show know) of the dangers of doing so?It seems older investors still hang their hat on the “spend the income, preserve the capital” adage of their Depression-Era parents and grandparents while younger investors have “tuned-out” of long-term investing altogether. A 401k plan sponsor who merely follows the wants of his naïve employees tempts the fate of fiduciary liability. Money markets, stable value funds and even mutual funds that invest in bonds (which are, by definition, equities, not bonds), can leave retiring employees with too little assets to pay for their expenses as well as leave them exposed to the ravages of inflation.Data reveals the amazing truth about the success of total return investing. So, what’s the best way 401k plan sponsors can offer total return options? First, it helps to teach employees how total return investing is in their best interests. Studies similar to those featured in the second Ford Foundation report show long-term investors (like those investing in 401k plans) are almost always better off investing for total return as opposed to income. This is because, over time, the volatility of equity investments dampen and their higher returns become more apparent.

There are many options in communicating the benefits of diversification and asset allocation to retirement accounts. These include seminars, webinars, social media and individual consulting.

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