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Should You Have Your 401(k) Professionally Managed?

Posted by Michael Kane on Dec 21, 2015 11:01:43 AM
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401k-managementAs with many questions, the correct answer is: It depends.  If you are like me, your goal is to grow your company 401(k) plan as much as you can so you can have a comfortable retirement.  But how do you get there?  The first step is to contribute as much as you possibly can to your 401(k) plan. Most importantly, you should always contribute at least the minimum required to get the maximum employer match. 

This is the easy part.  The hard part is choosing investments and deciding how much time you want to spend researching these decisions.  If you have no idea about investments and don’t have the desire to learn, then having your 401(k) professionally managed is probably a good idea. 

Benefits of an advisor

According to a 2014 report published by Financial Engines that examined the 401(k) investing behavior of 723,000 workers in 14 large U.S. employers from 2006-2012, assets managed by professionals realized an average of over 3% more in returns than those not professionally managed. Logically, you have to pay attention to what the professional money manager is charging to manage these assets — because it doesn’t make sense to pay 3% in fees to get 3% more in returns. 

You also have to realize that investment management is a full-time job.  You are paying the money manager to closely follow the markets and understand what’s going on in order to provide the most growth for your portfolio.  When you consider what your personal time is worth, paying an advisor to manage your investments may make the most sense.

Another reason to consider hiring an advisor is if you are emotional about the market’s ups and downs and tend to move your money in and out of your investments attempting to time the market. According to Dalbar’s annual study on investment return, individual investors realized a return of just 3.7% over the last 30 years compared to an 11.1% return on the S&P 500 over the same time period.  The two biggest factors cited for this discrepancy are that individual investors chase returns and attempt to time the market. 

For most people (myself included), it is very difficult to watch their investment values drop and not take action. But it’s usually best to stick to the fundamentals and stay the course.  When you try to time the market, you have to not only choose the right time to get out, but also the right time to get back in.

In the end, it’s up to you to decide whether to have your 401(k) professionally managed or do it yourself.  This is an important decision and comes down to doing your research.   Meet with potential advisors, ask lots of questions, call their references and make sure their values and goals align with yours.  

Learn More about 401(k) management

Here at RAA, we have over 25 years of experience in investment management and retirement planning services.  We have the industry expertise to assist you with the important financial decisions you will make before and after retirement.

If you are interested in learning more about our 401(k) Investment Management services, give us a call at (972) 684-5923 or request a call from one of our Financial Consultants on a day that works for your schedule.

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Disclaimer: This blog is intended for informational purposes only and should not be construed as individual investment advice. Actual recommendations are provided by Retirement Advisors of America following consultation and are custom-tailored to each investor’s unique needs and circumstances. The information contained herein is from sources believed to be accurate and reliable. However, Retirement Advisors of America accepts no legal responsibility for any errors or omissions. Investments in stocks, bonds, and mutual funds may increase or decrease in value. Past performance is no guarantee of future results. Any of the charts and graphs included in this blog are not recommendations for the purchase and sale of any security.

Topics: Financial Planning