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Four reasons to get advice on your 401(k) assets

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When it comes to their 401(k) or other retirement assets, too often investors are left to figure things out on their own. This raises common questions like: What funds should I be using? What’s the proper allocation to these funds? And how much risk should I be taking?

These questions are perfect for addressing with a financial advisor—and yet, investors don’t get advice for a variety of reasons. Maybe professional advice isn’t available within their plan, or isn’t tailored to their needs. Perhaps their current advisor doesn’t focus on their 401(k) assets—or maybe they’re simply comfortable managing things on their own.

However for most people, retirement plan assets make up a significant portion of overall wealth. It’s an important part of one’s financial success—too important to be ignored.

And as such, too important to neglect getting advice.

Let’s take a look at four ways getting advice on your retirement assets leads to better financial outcomes.


1. Better performance

The first (and perhaps most important) reason to seek advice on retirement assets is that simply put—doing so leads to better portfolio returns.

In 2014, the benefits and management consulting firm Aon Hewitt released a study of over 700,000 participants in retirement plans from 2006–2012. Specifically—“by linking participant Help [financial advice] usage with actual investment performance results, we can observe how participant behavior affected portfolio risk and returns over the seven-year period.”

The affects they found on performance were dramatic:

  • “Across all age ranges and a wide range of market conditions, participants using Help earned higher median annual returns than those not using Help.”
  • “The annual performance gap between Help Participants’ and Non-Help Participants’ median returns was 32%, net of fees over the period 2006–2012. This difference can have a meaningful impact on wealth accumulation over time. For a 45-year-old Help Participant it could translate to 79% more wealth at age 65.”

aon hewittSource: Aon Hewitt

In short, regardless of your age, seeking expert advice allows you to maximize returns and ultimately realize enormously better financial results.

2. Appropriate Risk Levels

One potential reason for this performance gap is risk exposure. The study found that nearly 2 out of 3 people were not taking the appropriate level of risk with their retirement investments:

“60.5% of Non-Help Participants had inappropriate risk levels. Of those, approximately two-thirds were taking on too much risk, and about one-third were taking on too little risk, jeopardizing these participants’ ability to accumulate sufficient retirement wealth.”

Working with a financial advisor helps ensure that your investment strategy is aligned with your risk tolerance, thereby optimizing your portfolio based on your individual financial goals.

3. Greater diversification

Financial advisors also facilitate greater portfolio diversification—the most important component of reaching long-range financial goals while minimizing risk.

A 2010 Charles Schwab survey found that retirement plan participants receiving professional advice were more diversified than those who were not. On average, those not getting advice were “invested in less than four (3.7) asset classes, whereas participants who receive advice have a minimum of eight asset classes.”

By helping you to diversify your 401(k) investments, seeking advice can better position you for financial success.

4. Better investor behavior

Finally, getting professional advice on your retirement assets also leads to better investor behavior. Receiving outside advice makes it much more likely for you to stick with your financial plan—earning you the rewards that only a disciplined, long-term strategy can provide.

The same Charles Schwab survey found that 92% of those who received financial advice were able to maintain their investment strategy during the 2008/2009 financial crisis—and were therefore fully invested for the significant market rebound in 2009 and subsequent years.

 

Between better portfolio performance, more optimal risk exposure, greater diversification, and improved investor behavior—there’s no question that seeking professional advice is the way to go when it comes to managing your 401(k) assets.


If you’re a current or former Intel employee and would like tailored advice on managing your retirement assets, visit our Contact Page or Give us a call at 503.621.9207.


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Cordant, Inc. is not affiliated or associated with, or endorsed by, Intel.

Published on May 26, 2015

Isaac Presley, CFA

Isaac Presley, CFA

Isaac Presley is Director of Investments for Cordant, a wealth management firm serving current and former Intel employees. To learn more, you can read Isaac's full bio.

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