Market's Timing?
About a week ago, a friend of mine asked me how my retirement plan investments were doing. Now, we’ve had conversations about asset allocation from time to time over the years – we’ve even compared “answers” on our individual 401(k) plan choices – so it wasn’t as though the question was out of left field. The truth was, I hadn’t checked on them since early July – but I answered, “OK, I suppose – why?”
As I waited for his response, two obvious answers to my question popped into my head. Either his account returns were sizzling, and he wanted to rub that in, or his account returns were not-so-impressive, and he was looking for some reassurance on the choices he had made in his account (that he was merely interested in the status of my retirement savings account didn’t really seem plausible under the circumstances). Then, I remembered – the last investment choice he made was to invest in a lifestyle fund – and, sure enough, he wasn’t thrilled with his return.
There have been several studies published in recent months about the relative performance of lifestyle/lifecycle funds and, frankly, from what I can call from memory, they all suggested that those funds have outperformed what typical participants choose on their own (setting aside for the moment the “inconvenient” fact that those results are generally put forth by the very same firms that are touting their asset allocation fund wares). In view of how most participants invest, that is perhaps not as high a standard as we should impose. Still, the notion of a fund choice that offers participants a potentially better return for less involvement on a consistent basis is a winning proposition for most.
Of course, “average” covers a broad swathe – and often obscures as much clarity as it yields. Still, as lifestyle funds proliferate on retirement plan menus, and as things like the new automatic enrollment provisions (see Pension Reform Influences Automatic Enrollment Designs) further accelerate their adoption as default investment choices, I wonder if it will affect how participants view – and review – their retirement accounts.
The cynical answer, of course, is that they don’t pay attention now, and they – certainly the defaultees - probably won’t pay any more attention in the future. However, my sense is that participants do pay attention to their retirement plan statements, if only to make sure that their payroll withholdings were actually deposited. Moreover, while it’s become very trendy to talk about how uninvolved participants are, I can recall a time – and not so very long ago - when we fretted with good reason about how often people were checking out their account balances.
My guess is that, as participants begin to believe that there is good news in those retirement plan statements, they will, once again, pay more attention to the contents. What remains to be seen is if they will continue to value the balanced discipline of lifestyle funds during the cycles of the market that may well yield a higher return to a less balanced approach.
- Nevin Adams editors@plansponsor.com
As I waited for his response, two obvious answers to my question popped into my head. Either his account returns were sizzling, and he wanted to rub that in, or his account returns were not-so-impressive, and he was looking for some reassurance on the choices he had made in his account (that he was merely interested in the status of my retirement savings account didn’t really seem plausible under the circumstances). Then, I remembered – the last investment choice he made was to invest in a lifestyle fund – and, sure enough, he wasn’t thrilled with his return.
There have been several studies published in recent months about the relative performance of lifestyle/lifecycle funds and, frankly, from what I can call from memory, they all suggested that those funds have outperformed what typical participants choose on their own (setting aside for the moment the “inconvenient” fact that those results are generally put forth by the very same firms that are touting their asset allocation fund wares). In view of how most participants invest, that is perhaps not as high a standard as we should impose. Still, the notion of a fund choice that offers participants a potentially better return for less involvement on a consistent basis is a winning proposition for most.
Of course, “average” covers a broad swathe – and often obscures as much clarity as it yields. Still, as lifestyle funds proliferate on retirement plan menus, and as things like the new automatic enrollment provisions (see Pension Reform Influences Automatic Enrollment Designs) further accelerate their adoption as default investment choices, I wonder if it will affect how participants view – and review – their retirement accounts.
The cynical answer, of course, is that they don’t pay attention now, and they – certainly the defaultees - probably won’t pay any more attention in the future. However, my sense is that participants do pay attention to their retirement plan statements, if only to make sure that their payroll withholdings were actually deposited. Moreover, while it’s become very trendy to talk about how uninvolved participants are, I can recall a time – and not so very long ago - when we fretted with good reason about how often people were checking out their account balances.
My guess is that, as participants begin to believe that there is good news in those retirement plan statements, they will, once again, pay more attention to the contents. What remains to be seen is if they will continue to value the balanced discipline of lifestyle funds during the cycles of the market that may well yield a higher return to a less balanced approach.
- Nevin Adams editors@plansponsor.com
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