Comments on: Changed my 401(k) Allocation http://www.consumerismcommentary.com/changed-my-401k-allocation/ A premier personal finance blog, established 2003. Within, Flexo discusses his own experiences with money, and he and other authors comment on a wide range of personal finance topics. Sun, 12 Feb 2012 20:01:44 +0000 hourly 1 http://wordpress.org/?v=3.3.1 By: Jeff http://www.consumerismcommentary.com/changed-my-401k-allocation/comment-page-1/#comment-45439 Jeff Mon, 24 Jul 2006 20:28:46 +0000 http://www.consumerismcommentary.com/2006/04/06/changed-my-401k-allocation/#comment-45439 Hi Flexo, This is true if you're using 100% index funds, which is not prudent due to volitility. Most managed portfolios have between 25% and 35% in fixed income to help mitigate risk, so you're not really comparing apples to apples. The goal is to get close to market returns, while lowering downside risk with fixed income instruments. The fixed income component is based on the efficient frontier, which determines the point at which the risk outweighs the potential long term gain. Where this point is will change based on who you talk to, but the 25% to 30% in fixed income is about the range. I think the underperformance of average equity investors has been well-documented. According to Dalbar's Quantitative Analysis of Investor Behavior, 2005 (www.dalbar.com) average equity fund investors underperformed by almost 10%. This study seems a bit agressive, and some researchers have questioned the validity of this study (see http://webuser.bus.umich.edu/Departments/Communications/clips/Apr04/Zheng4.04.pdf). However, other experts feel this study actually understates the gap (see John Bogle’s comments, “Is the Dalbar Study Accurate?� from his speech, http://www.vanguard.com/bogle_site/sp20031103.html). I personally think the Dalbar number is a little overstated, but many experts agree that average investors have underperformed the overall market by anywhere from 2.7% to as much as 10%. Of course, if fees for a managed 401(k) service are over 1%, then the actual ROI on using a managed service is diminished. I recommend that managed account services have a capped annual fee and stay well below 1%... The fact is, about 50% of people have no idea how to build even a basic portfolio and could be benefited by having a professional manage their account for them. Personal note: Sorry for sounding like a company spokesperson... That was not my intent, but I can see how it would come off that way. Hi Flexo,

This is true if you’re using 100% index funds, which is not prudent due to volitility. Most managed portfolios have between 25% and 35% in fixed income to help mitigate risk, so you’re not really comparing apples to apples. The goal is to get close to market returns, while lowering downside risk with fixed income instruments.

The fixed income component is based on the efficient frontier, which determines the point at which the risk outweighs the potential long term gain. Where this point is will change based on who you talk to, but the 25% to 30% in fixed income is about the range.

I think the underperformance of average equity investors has been well-documented. According to Dalbar’s Quantitative Analysis of Investor Behavior, 2005 (www.dalbar.com) average equity fund investors underperformed by almost 10%. This study seems a bit agressive, and some researchers have questioned the validity of this study (see http://webuser.bus.umich.edu/Departments/Communications/clips/Apr04/Zheng4.04.pdf). However, other experts feel this study actually understates the gap (see John Bogle’s comments, “Is the Dalbar Study Accurate?â€Â? from his speech, http://www.vanguard.com/bogle_site/sp20031103.html).

I personally think the Dalbar number is a little overstated, but many experts agree that average investors have underperformed the overall market by anywhere from 2.7% to as much as 10%.

Of course, if fees for a managed 401(k) service are over 1%, then the actual ROI on using a managed service is diminished. I recommend that managed account services have a capped annual fee and stay well below 1%…

The fact is, about 50% of people have no idea how to build even a basic portfolio and could be benefited by having a professional manage their account for them.

Personal note: Sorry for sounding like a company spokesperson… That was not my intent, but I can see how it would come off that way.

]]> By: Flexo http://www.consumerismcommentary.com/changed-my-401k-allocation/comment-page-1/#comment-44241 Flexo Thu, 20 Jul 2006 07:07:28 +0000 http://www.consumerismcommentary.com/2006/04/06/changed-my-401k-allocation/#comment-44241 Jeff, I deleted your second comment saying roughly the same as your first. Actively managed funds return less after fees than index funds. In my opinion, you have the trend backwards, but we're just talking about opinions here. Do you have some verifyable statistics about this supposed trend? Obvisouly your comments are written to promote the services your company (which I removed) provides. I edited them to remove the shlling. I try to let my readers get unbiased opinions here rather than company spokespersons. Jeff, I deleted your second comment saying roughly the same as your first. Actively managed funds return less after fees than index funds. In my opinion, you have the trend backwards, but we’re just talking about opinions here. Do you have some verifyable statistics about this supposed trend?

Obvisouly your comments are written to promote the services your company (which I removed) provides. I edited them to remove the shlling. I try to let my readers get unbiased opinions here rather than company spokespersons.

]]> By: Jeff Sinatra http://www.consumerismcommentary.com/changed-my-401k-allocation/comment-page-1/#comment-29378 Jeff Sinatra Thu, 22 Jun 2006 18:58:34 +0000 http://www.consumerismcommentary.com/2006/04/06/changed-my-401k-allocation/#comment-29378 Asset allocation is great, but I think there's a trend away from self-managed 401(k)'s to professional management of these accounts. To me, this makes a great deal of sense as most people pay little attention to their 401(k) and it is becoming increasingly more important... IMHO, this is where the industry is going. Asset allocation is great, but I think there’s a trend away from self-managed 401(k)’s to professional management of these accounts. To me, this makes a great deal of sense as most people pay little attention to their 401(k) and it is becoming increasingly more important… IMHO, this is where the industry is going.

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