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Turning 401(k) Investors Into Educated Consumers

Asking investors to properly maneuver their 401(k) plans in a market like this is akin to an airline pilot stepping aside and telling passengers to take the controls mid-flight.

Workers never asked for so much responsibility in controlling their own retirement future, and most have no idea what to do now that the plane is losing altitude. In fact, most investors seem to be in shock and are doing nothing at all.

A persistent problem with the mutual fund industry is the lack of education among its customers about how to manage their own retirement savings. Ignorance was bliss when equities were historically delivering 10% average returns, but the tide has turned.

The first wave of Baby Boomers realized they did not have enough savings and decided to bet on risky equities to make up for the shortfall. That gamble backfired when equities in nearly every asset class plummeted last year. Now vastly underfunded as they approach retirement, most Boomers are skeptical they will ever get it back.

Financial information is very confusing to the uninitiated. The vocabulary is difficult, the products are complicated, and the professional advice isn't always right.

If the fund industry can encourage its customers to become more financially savvy, without stepping on any conflict-of-interest tripwires, its investors will be able to shop for the best products at the lowest cost and keep more assets under management.

Younger workers-particularly those in my generation-are getting an early and valuable lesson about market volatility. Buy-and-hold investing is obsolete in an era where one bad year can wipe out 20 years of gains. Younger workers still have plenty of time to more than make up for losses, but will be wary going forward of future bear markets.

These investors are plugged in to a myriad of information available instantly at their fingertips. As technology continues to advance, this will lead free-thinking investors who will be able to take responsibility for learning how to navigate their savings. Funds would be wise to become the source and the inspiration for that learning.

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