Nobel Prize-Winning 401(k) Advice – Real-Time Advice

Daniel Kahneman
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There is a saying about retirement plans and portfolios in general…’Your portfolio is like a bar of soap the more you touch it the smaller it gets.’ When a 401(k) offers a more pension fund like plan their employees will benefit from less anxiety and better results.

Nearly a quarter of 401(k) savers allowed to take loans do so at any given time, according to one recent study— and over a seven-year period that rate increases to 50%. “It’s clear that in the conflict between the present and the future, the present tends to win,” Kahnemansays. “The ease with which the 401(k) savings can be withdrawn when a financial emergency arises is clearly disastrous for people. Given the choice between cashing out your 401(k) and borrowing from relatives, most feel an obligation to go with the 401(k).”As a general rule, investors would be better off with their hands tied and eyes close, he says. “With respect to my own investment policy, I have a very simple rule: don’t look,” he says. “I don’t look how well my investments are doing so I am not tempted to make quick decisions about it.” Freedom, he contends, can be overrated.

Kahneman’s work in behavioral economics highlighted our tendency to stumble when numbers are involved. The interplay between our automatic thinking and our more reflective analysis, causes us to stumble on statistics and all too often make the wrong call.

Our aversion to loss is a far more powerful force in decision making than the desire to gain, Kahneman stresses. So when decisions do need to be made, they shouldn’t be made quickly. “When it’s important, slow down. Take as much time as possible, pre-commit to a plan and stick with it.”

This is really the main reason Americans do not save enough. When you add a risk adjusted globally diversified portfolio you have an unbeatable combination.

Please comment or call to discuss how your company plan can be designed to improve results for all.

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