The vast majority of individual investors pay little or no attention to their individual company 401(k) retirement plan accounts. There are many reasons; here are the most likely suspects.
No time. No experience. No expertise in money and investment matters.
An individual company 401(k) retirement plan participant once told me that the reason he never paid attention to his retirement account was that “life just gets in the way sometimes.”
Every few years the U.S. stock markets take away several previous years of stock market investment gains. From October 9, 2007 to March 9, 2009 the S&P 500 lost 57%.
Inattention to selection and monitoring of company 401(k) retirement plan mutual fund options sets up individual investors to suffer the same fate as the S&P 500 during the next great stock market downturn.
In recent years, the default company 401(k) retirement plan option has become a target date mutual fund. If you don’t pick a company 401(k) retirement plan option, your money gets invested in a target date mutual fund.
If you bought a stock mutual fund several years ago and you don’t realize that the mutual fund has been replaced, there is also a good chance that you now own a target date mutual fund.
It is no coincidence that target date mutual funds are the largest holdings in company 401(k) retirement plan participant assets. Again, the reason is that individual investors don’t pay attention.
Target date mutual funds are a predetermined combination of U.S. stock and U.S. Treasury bonds. They are marketed by mutual fund companies and company 401(k) retirement plan providers as a “set-it-and-forget-it” investment option.
It is a great marketing gimmick if you think about it. Target date mutual funds are marketed as the perfect company 401(k) retirement plan option for individual investors who don’t pay attention to their stock and bond market risk.
With U.S. stock market at all-time highs and worldwide interest rates near all-time lows, how lucky do you feel about your target date mutual funds? One more thing; the U.S. stock markets are historically overdue by more than two years for a meaningful correction.
I meet with individual company 401(k) retirement plan participants all the time who joyfully proclaim that they have finally regained their all-time high company 401(k) retirement plan balances going all the way back to year-end 2008.
Those are the individual company 401(k) retirement plan participants who did not pay attention. They waited more than eight years to “get their money back.”
Ric Lager
Lager & Company, Inc.
