DES MOINES -- A study of 401(k) accounts provides more evidence that workers who get help pocket higher returns than those handling their investment choices.
The study by human resources consultant Aon Hewitt and investment adviser Financial Engines shows that workers who received some form of help experienced annual returns on average of 3 percentage points better than workers who handled their own accounts.
Workers who used target-date mutual funds, professionally managed accounts, or online advice were all deemed to have used help for the study's purposes. Their behavior from 2006 through 2010, and how it affected account risks and returns, was studied.
If two accountholders -- one who sought help and one who did not -- invested $10,000 at age 45, the person who got help could have $71,400 saved by age 65, compared with $42,100 for the worker who handled his own affairs.
The study looked at eight large 401(k) plans representing more than 425,000 individual participants with $25 billion in assets.
The difference can be attributed to common mistakes made by 401(k) account holders managing their own investments.
Pulling money out of stocks when the market tumbles and then failing to reinvest before the market recovers hurts many retirement investors.
This behavior was very damaging in 2008, when the Standard & Poor's 500 index fell nearly 39 percent. Unfortunately, many stayed out and missed the 26 percent recovery in 2009.
Choosing an inappropriate level of risk for a worker's age and years until retirement is another common error. Leading up to the market collapse in 2008, many workers within five years of retirement kept large portions of their money in stocks. When the market dropped, on average, 401(k) investors lost a third of their account balances. Those who were close to their planned retirement didn't have time to make up the losses and in many cases had to keep working.
Younger workers who are too cautious and shy away from stocks can cut their earning potential significantly over time.
Another common costly mistake is investing too much in the employer's company stock.
Failure to periodically rebalance a portfolio can also hurt returns. By rebalancing, investors adjust the allocation between stocks and bonds in their portfolios so their investments reflect their appetite for risk. Failure to rebalance after a market surge or drop leaves a portfolio at risk to underperform.
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.
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