Manning & Napier Advisors, Inc. - life cycle management for your 401k Manning & Napier Advisors, Inc. - life cycle management for your 401k  
Manning & Napier Advisors, Inc. - life cycle management for your 401k Manning & Napier Advisors, Inc. - life cycle management for your 401k Manning & Napier Advisors, Inc. - life cycle management for your 401k Manning & Napier Advisors, Inc. - life cycle management for your 401k Manning & Napier Advisors, Inc. - life cycle management for your 401k Manning & Napier Advisors, Inc. - life cycle management for your 401k Manning & Napier Advisors, Inc. - life cycle management for your 401k
Manning & Napier Advisors, Inc. - life cycle management for your 401k
Manning & Napier Advisors, Inc. - life cycle management for your 401k
Participant Behavior

Asset Allocation: The Most Important Factor

Accommodating Types of Participants

"Participants in 401(k) plans rarely change their asset allocations once they are initially set. Yet if participants fail to reallocate their 401(k) assets, the system fails."

Source: Life Cycle Funds: Fit for Life by Michael Porter and Lucas Garland, Lipper FundIndustry Insight Reports, March 14, 2005

"Almost as empty as the promise of the dot.com revolution was the promise that participant education would make America's employees into pension managers."

Source:  Voice: Advising Plan Participants by Louis S Harvey, Founder and leader of Dalbar, Plansponsor.com, August 2003

Did you know...

  • 42% of participants indicate they have little or no investment knowledge1
  • Slightly more than 66% realize they would be better off working with an advisor rather than managing their retirement investments entirely on their own1
  • About 50% believe they possess the skills required to manage their portfolios, but would rather spend time doing other things1
1John Hancock Financial Services 2002 DC Plan Survey, Insight into Participant Investment Knowledge & Behavior conducted in conjunction with Mathew Greenwald & Associates, January 2002. The survey was administered to a random sample of 801 individuals between the ages of 25 and 65 who contributed money to their retirement savings plan and had a choice of funds in which to invest. This is the 8th such survey that John Hancock has conducted since 1991.

Copies of the entire articles referenced above are available upon request.


Most participant-directed menus are designed with the assumption that plan participants have a basic knowledge of investing and asset allocation, and the desire to make these decisions themselves. In reality, most participants do not make effective investment choices.






Participant Behavior


 		 Too conservative...
  • Being intimidated by the investment selection process may cause many investors to choose what they feel is the safest option, often with the lowest return.
  • This approach to investing can backfire since people need growth of capital to accumulate enough money to help them retire comfortably.
 
Too aggressive...

  • Chasing the hottest short-term returns leads to investments in more aggressive options based solely on short-term performance.
  • This "buy high - sell low" mentality has many mutual fund investors invested in equities at the wrong time.

 



Asset Allocation - The Most Important Factor


Many participants do not have the desire, time, or expertise to determine their own asset allocation. Asset Allocation is the ongoing process of determining how to diversify an account among the different types of investments (stocks, bonds, and cash) to meet a specific objective.

Over 93%* of investment success rests on knowing:
  1. how to correctly mix stocks, bonds, and cash within the account;
  2. when to change that mix over time based on an investor's personal objectives and current or anticipated market trends.
It requires constant monitoring of and adaptation to ever-changing economic, political, and social developments.

*Source: Gary P. Brinson, Brian D. Singer and Gilbert L. Beerbower, “Determinants of Portfolio Performance II, An Update,” Financial Analysts Journal, May – June 1991.



Accommodating Types of Participants

Plan participants may represent experts in fields ranging from construction to medicine. However, it is unlikely that a significant number of participants would also consider themselves experts, or even well versed, in the field of investments.

A plan sponsor must:
  1. acknowledge that participants desire varying degrees of involvement when making their investment decisions; and
  2. design the investment menu with appropriate investment options.