by Kevin L. Coppola
(original article here)
This article entitled, “Scary study shows 401(k) matching doesn’t work” in and of itself should be a concern to a 401k investor and plan sponsor. The essence of the article is that the choice of which funds to own is a difficult one and one that the plan participant is likely to either not make at all, or make the wrong choice (at least better than doing nothing.)
This flys in the face of plan sponsors who think they are doing their plan participants a favor by giving them more choices. My favorite is the “brokerage window” offered to many Fidelity plan participants. If the plan participants can’t do well with 20 choices, what are they supposed to do with 3,000??!!
Additionally, the article all but admits that the best return someone can expect over their lifetime is 8%, which can be shown mathematically to leave plan participants well short of the Retirement Income Security goal of being able to replace 100% of their pre-retirement salary. And this is still overstated.
-As using historical returns of 10% for stock and 3-5% for bonds, it would require the average equity/fixed income mix over a lifetime to be 80%/20% when the reality is only the most “aggressive” investor would hold this percentage, and the industry advises all people to reduce the stock holdings – and therefore reduce the potential return – as they get older.
-So a 60/40 lifetime mix may be closer to reality and it’s return would be closer to 6% than 8%. Note that the BEST formulaic asset allocation fund (fixed pie-chart of XX%Stocks/XX%Bonds) over the last 14 years has averaged 6.7% return, so the average would of course be lower.
ATTENTION: Plan Sponsors
- Make the best use of the plan you already have
- Contributions—yours or your employee’s—matters little. What matters are the results.
-Most plan participants just want to be told what to do. The Horizon™ Model Portfolio does exactly that.
-The return for default investments can AT BEST be between 6-8% which are insufficient to generate enough income in retirement. Horizon™ offers 12-14% on average (Hard to believe? These results were audited by Ashland Partners).
ATTENTION: Plan Participants (401k Investors!)
- Get a regular analysis of your 401k fund options every 5 weeks with SIMPLE guidance on how to align your portfolio for success
- Empower yourself to have ACTIVE CONTROL on your own money with the proven support of the Horizon™ service
- Achieve better results for yourself and your money!
- Have confidence that your retirement investments are on the right track!
Kevin L. Coppola