This 401(k) strategy pays bigger dividends


A new study of 401(k) accounts provides further evidence that workers who get help pocket higher returns than those handling their own 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 percent better than workers who handled their own accounts.
But it’s important to clarify what’s meant by “help.” Workers who used target-date mutual funds, professionally managed accounts or accessed online advice were all deemed to have used help for purposes of this study. Their behavior from 2006 through 2010, and how it affected account risks and returns, was studied.
Target-date funds automatically set the mix of stocks and bonds according to a worker’s risk tolerance and years until retirement. Managed accounts are those with professional managers so the accountholder doesn’t have to make ongoing investment decisions.
Based on the returns estimated in the study, the difference that 3 percent could make over 20 years is striking. If two accountholders invested $10,000 at age 45, the person who got help could have $71,400 saved by age 65. That compares with the $42,100 saved by the worker who handled his own affairs.
The study looked at eight large 401(k) plans representing more than 425,000 individuals with $25 billion in assets.

Source: The Oregonian, September 27, 2011 by The Associated Press

Learn more about Ron Sloy.


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