401(k) participants who use employer-provided investment assistance outperform those who do not take advantage of help tools, according to a report from Aon Hewitt.
The study found that workers who used employer-sponsored assistance between 2006 and 2010 experienced annual returns nearly 3% higher (292 basis points, net of fees) than those individuals managing their 401(k)s on their own.
“This research shows the concrete value of professional retirement assistance during a variety of market conditions, and across age groups,” says Christopher Jones, chief investment officer at Financial Engines. “Those 401(k) participants who get help with their portfolios outperformed those handling their accounts on their own.”
Poor portfolio diversification and inappropriate risk choices contributed to the widening performance gap between participants using professional help and those not using assistance, particularly in 2009. Some participants also reacted to the market volatility, moving to cash or bonds, and then missed out on the market rally in 2009.
Aon Hewitt/Financial Engines’ report shows that the use of employer-sponsored retirement help is on the rise. Nearly one-third (30%) of 401(k) participants used professional help by the end of 2010, up from a quarter (25%) in 2009.
While baby boomers used professional investment help the most (44%), older participants not using professional help often made investing mistakes, potentially putting their retirements at risk, according to the report. Non-help participants of all ages had higher risk levels.
“Due to their proximity to retirement and their lack of time to make up sudden losses, older participants have the most to lose during times of volatility,” says Hess.