A report by Financial Engines recently indicated employees get much better returns on their 401(k)s when they take advantage of employer-provided investment help.
According to researchers, volatile markets exacerbate the difference, increasing the edge enjoyed as a result of professional advising. The report examined defined contribution plans from 2006 through last year, amassing data on eight separate employer-sponsored funds with more than 400,000 total participants. Plan assets totalled approximately $25 billion.
"Those 401(k) participants who get help with their portfolios outperformed those handling their accounts on their own," stated Financial Engines' chief investment officer, Christopher Jones. Employees who did not use assistance suffered from inefficient, poorly-diversified portfolios and investment mistakes.
More than 55 percent of plan participants not using assistance were found to have portfolios with either too much or too little risk. Workers who did use help had 3 percent higher annual returns. Researchers calculated the difference in wealth could become as great as 70 percent after 2 decades, or possibly higher, depending on the amount invested and other factors.
Perhaps due to these advantages, researchers did find that the use of employer-sponsored help is on the rise, with about 5 percent more employees taking advantage of such resources in 2010 compared to the previous year.
