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7 responses to “New Study Reveals Three 401k Strategies More Important than Asset Allocation”

  1. Ed Bosch, Jr., LUTCF, AIF®

    I do not think that it would surprise many advisors that if a person works for 45 years, from age 25 to age 70, as the author suggests, that they could save less of their earnings and also demand a smaller rate of return from their portfolio when saving for retirement. I do, however, feel these assumptions are not very realistic. With most employers you are not going to be afforded the opportunity to work to age 70. Many employers are forcing people with seniority out of their positions and hiring younger workers who demand less wages and benefits. While we could write a separate paper as to whether this is good business or not we can certainly agree that most companies (in an effort to increase shareholder value) will not stop this practice anytime soon. In addition, most American’s do not relish the idea of working until age 65, much less age 70.

  2. Don Devost

    I agree with the comment that none of these findings are shocking to any thoughtful financial advisor. I do think, however, that many plan advisors give short shrift to participant education and guidance and focus more on the areas more easily controllable, like asset allocation. I think the importance of this is that advisors need to concern themselves more with outcomes, that is total participant savings rather than just investment performance. And that means focusing more on participant guidance. A lot of advisors won’t do this because it’s hard work and because they aren’t comfortable engaging with participants in am in-depth manner that could lead them to areas of fiduciary responsibility.this is sad but largely true of plan advisors

  3. Grant Arends

    The findings in this article and the power of asset allocation are mutually exclusive.

    Retirement Plan Advisors have long known the power of starting early, delaying retirement, AND increasing deferral rates play an enormous role in participant outcomes.

    BUT, one cannot also ignore the fact that 80% (I’m being kind) of people have little to no business determining and managing their investment allocation strategy.

    Therefore, helping people determine their desired level of risk and then plugging them into a strategy vs. leaving security selection 100% up to the individual is very important as well.

  4. John Frisch

    The first paragraph of this article is misleading in that the study is not comparing or contrasting asset allocation to security selection. The article does correctly state that the study ranks 401k success drivers such as saving, delayed retirement and reverse mortgages ahead of investment selection. The study uses investment returns of various asset allocations to confirm it’s findings. It does not suggest that when you do consider proper investment inside a 401k account that you should not use asset allocation. It doesn’t mention security selection at all.

  5. Ronald Surz

    Saving enough is more important than investing. All cash works just fine if you’ve saved enough. But it would appear that employers and their advisors don’t understand this fundamental truth when it comes to target date funds (TDFs). They’ve drunk the cool-aid that fund companies are serving up.

    Fund companies say the appropriate objective for TDFs is to make up for inadequate participant savings, so they advocate high risk, which is easy & profitable for them to say because they are not fiduciaries, and they get paid more for taking more risk. It’s all upside (profit) with no downside (fiduciary responsibility). The truth is that the best remedy for inadequate savings is to save more – change participant behavior. Duh!

    The fiduciary objective should be the Hippocratic Oath of TDFs: Don’t lose participant money, especially near the target date. It’s what the participants need and want – it’s what they think they are getting.

  6. BPP401k.com Newsletter 08.22.12 Benefit Plans Plus 401k

    […] New Study Reveals Three 401k Strategies More Important Than Asset Allocation For nearly twenty years, financial service providers have claimed the secret to retirement success lies in asset allocation, not security selection. Both professional and academic careers have been made on this premise, but a new study offers an alarming assessment of the fruits of the debate – and has the real-life numbers to back up its conclusions. Source: Fiduciarynews.com […]

  7. The Long Game: 3 Retirement Options for Freelancers | The Freelancer, by Contently

    […] if choosing the type of retirement account seems daunting, consider this: a study published in 2012 found that investing early (asset accumulation) is more important than the actual investments […]

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