The Plight of the Individual Investor

Individual investors usually fair poorly at do-it-yourself investing. Numerous studies, including one by Dalbar, Inc., reveal the staggering margin by which the average individual investor trails the returns of the broader market. As the chart shows, the study revealed the S&P 500* returned 9.22% while the average equity investor’s return over that same period was a paltry 5.02%, a difference of 4.20% annually. The average fixed income investor fared no better over the same period, achieving 0.71% annually while the Barclays Aggregate Bond Index* averaged 5.74%, a difference of 5.03% annually. Why is the individual investor unable to capture the returns of the market? In a word: Emotions. 

7 WAYS TO MESS UP YOUR 401(k)**

1. Don’t sign up
2. Don’t get the full company match
3. Take too much risk
4. Take too little risk
5. Follow the crowd
6. Take out loans
7. Cash it out

*Source: State Street Global Advisors - Speaking in Confidence - Contribute Magazine - Spring/Summer 2014

Are You a Prudent Saver?

Do you have the time, training and temperament to make good decisions? The vast majority of participants in a company retirement plan do not pay the needed amount of attention to their initial investment selection. Moreover, statistics show plan participants rarely revisit their choices over time as their objectives change and markets evolve.

Over the past few years many employers have enhanced their retirement plans to include a brokerage window opportunity so that plan participants have more choice and greater flexibility with their retirement investments. This option, known as the Self Directed Brokerage Account (SDBA), exists in 401(k), 403(b) and 457 plans where participants will have access to professional management, stocks, bonds, mutual funds, and ETFs.

How it Works

Plans that offer the SDBA option provide the opportunity for employees to take full control of a portion of their current retirement account by linking it to the existing Core account. In doing so, participants expand the range of investment choices beyond the Core investments and will have access to the same management style as High Net Worth Investors, Institutions and Foundations. The Core account refers to the retirement account through the employer that offers limited, pre-selected investment choices. The SDBA is very similar to traditional brokerage accounts which exists as an eligible option on retirement plans. Employers that offer the SDBA option allow employees to transfer a portion of their investments from the Core account to SDBA. Through this account employees have access to investment choices such as mutual funds, stocks, bonds and access to professional investment advice through a Registered Investment Advisor. SDBAs are currently the most underutilized investment options in 401(k), 403(b) and 457 accounts. However, this option should be used by investors who feel comfortable managing their own risk or are working with a professional Investment Advisor.

The SDBA or a “brokerage window” is a choice on eligible plans that offers investment choices such as mutual funds, stocks, bonds, and access to fiduciary investment advice through a registered investment advisor.

ADVICE MATTERS

People who sought help with their 401k earned 3% more, latest studies show. (1,2)

Recent studies emphasize the importance of client-advisor conversations. These reports prove that with the help of their advisors, investors can add 3% to their net returns (1) and retirement savers who sought investing advice enjoyed a median annual return almost 3% higher than those who didn’t – even after the fees they paid for that advice. (2)

1) According to Vanguard’s study based on their Alpha framework. Putting a value on your value: Quantifying Vanguard Advisor’s Alpha, Vanguard Research, 2014

2) The study of 14 large retirement plans with more than 723,000 individual participants and over 55 billion in assets, by Aon Hewitt, a consulting firm, and Financial Engines, an investment advisory firm, between 2006-2012.

3) Dalbar Study - average equity investor and average bond investor performance results are calculated using data supplied by the Investment of Company Institute. Investor returns are represented by the change in total mutual fund assets after excluding sales, redemptions & exchanges. This method of calculation captures realized & unrealized capital gains, dividends, interest, trading costs, sales charges, fees & any other costs.

TPFG Equity & TPFG Balanced portfolios are net of all fees including the Investment Advisor Representative (IAR) fee of up to 1%, cost of custody and trading. Time Weighted Returns shown above for both the Dalbar Study and TPFG Portfolios are from 01-01-1994 to 12-31-2013. Past performance does not guarantee future results.