You work with computers, take care of people, or make art. Just staying up-to-date in your own field is hard. So, what happens to your 401(k) while you're out doing your thing?
Does it just sit in a dusty corner of your mind, forgotten? Like millions of other people, do you cross your fingers and hope that your portfolio will pay off?
Investors can now get more help managing their 401(k) accounts because the industry has changed. In the past, defined contribution plan providers could only make general recommendations about asset classes to avoid conflicts of interest. But new rules let financial service companies hire independent, third-party financial advisers like Ibbotson Associates to manage the 401(k) accounts of individual investors.
If you get help from a professional, the money in your portfolio will be put into the right funds in your existing plan, rebalanced regularly, and changed over time to fit your changing needs. And people like these programmes.
Ibbotson is the third-party advisor for AIG VALIC, Fidelity, Great-West Retirement Services, Merrill Lynch, the Principal Financial Group, and TIAA-401(k) CREF's managed account programmes. Even though 401(k) managed accounts have only been around for two years, the number of people using them is growing quickly. Industry research firm TowerGroup says that there are more than $10 billion in 401(k) managed account programmes now, and that number is expected to reach $300 billion in 2010.
Many employees don't know how to manage their retirement plans, which is a big reason for the growth. Hewitt Associates, a human resources company, found that only 16% of people who had a 401(k) account in 2004 made any changes to it. The study also showed that some employees didn't take enough risks with their investments, while others took on too many. For example, people put about 27% of their 401(k) money into their own company's stock.
