Tags: retirement | 401k | investors | do-it-yourself

USA Today: Most Do-It-Yourself Retirement Investors Doing Nothing

By    |   Tuesday, 20 May 2014 03:00 PM

Most people with 401(k)s take a do-it-yourself approach. But the problem is, most of them are not doing anything.

Consider that 63 percent of workers with 401(k)s are going it alone, managing their own investments. Over half of those people are unengaged, USA Today says a large study from Fidelity Investments reveals.

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Unengaged investors are those who have not made a fund exchange, sought guidance from a Fidelity representative, used online tools or updated how their contributions are invested for the past two years, Fidelity Investments vice president Jeanne Thompson explained.

“We recommend that once a year you do an annual checkup on your 401(k) and talk to someone or use some online tools just to make sure you are on track,” Thompson told USA Today.

Investors who lack “the will, the skill or the time to manage their retirement investments might benefit more if they had professional management,” says Thompson.

She stressed that “you have to turn your 401(k) into a retirement paycheck and small changes and keeping tabs on it can make a big difference in the long run.”

By just letting retirement portfolios ride on auto-pilot, investors are taking on significant risks, especially people who are 100 percent invested in stocks and stock mutual funds.

“The market is riding high now, but you don't know how long that will last. If something would happen, you could take on more losses than you want,” says Thompson.

“Similarly, if you have no money in stock mutual funds, you might not earn enough to keep up with inflation,” she adds.

Another mistake that do-it-yourself 401(k) investors are making is not investing enough.

Fidelity data show 21 percent of employees are essentially leaving free money on the table because they are not taking full advantage of the company's offer to match a certain percentage of their contributions.

In a MarketWatch column, Mitchell Tuchman raises similar concerns about investor behavior. He cited a UBS poll that found people in their early to mid-30s with at least $100,000 to invest keep a staggering 42 percent of that money in cash.

They're “fighting the last war,” Tuchman explains. They're living in response to a life where all they've known are "gargantuan panics," such as the housing collapse and Great Recession.

But it's not healthy and these investors are setting the stage to learn hard lessons about the dangers of extreme concentrations of cash and stocks.

Such positions greatly increase the risk of being underinvested as markets rise, and overinvested when the eventual setbacks finally do arrive, writes Tuchman.

It's important to have a balanced portfolio and to rebalance it in an unemotional manner to capture gains and reduce risks as the environment changes. That is exactly how patient investors build wealth in all markets, year after year, Tuchman says.

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Most people with 401(k)s take a do-it-yourself approach. But the problem is, most of them are not doing anything.
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Tuesday, 20 May 2014 03:00 PM
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