 Common Myths About 401(k) Investing
- Participants Are Succeeding - Dalbar's Annual QAIB (Quantitative Analysis of Investment Behavior study, measuring the effect of investor behavior on long term investment performance again illustrated a dramatic difference between investor returns (1.87%) and market returns (8.35% by the S&P 500) over the 20 year period ending December 31, 2008. Read Report
- Investment Fundamentals are Intuitive - Proper asset allocation and fundamental investment principles such as rebalancing and sell high-buy low are in large part counter-intuitive for the majority of investors.
- Emotions Have No Impact On Investing - Greed and fear result in chasing performance and/or inertia, which holds true even with target retirement funds.
- Target Date/Lifestyle Funds Fit the Need for All Investors - Having reviewed the holdings of nearly 5,000 participant accounts, less than 2% of those participants have properly used target date/lifestyle funds correctly, as a one-stop investment choice, when the participant had $30,000+ of assets.
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Studies by mutual fund companies such as Vanguard revealed similar results, but did not measure the effectiveness based on the participant's account balance
- While these funds tend to be very good options for investors with small account balances, they seem to fall out of favor once the account balance becomes relevant in the mind of the participant, resulting in participants continuing to chase performance.
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