Since the stock market is reaching new highs, you are questioning what you should do with your investments in your retirement plan. Should this be the time to add more to your winners take profits and run or just do nothing at all? There are many investors who are confused and are finding a 401(k) advisor to manage accounts in their 401(k) plans.
Comes with a price
But, this professional management comes at a price. Contingent on the service provider and how much you want to invest, an account that is managed can cost you from 0.15% to 0.7% each year. Now, that might not seem like very much but when you add in the expense ratios that is higher of the managed funds that these accounts have the tendency to use and you are starting to talk about real money.
It might be worth it if they would boost your returns but there is no indication that active management can do any better than a modest portfolio with low-cost index funds. The evidence is the opposite with managed-account providers who admit that low cost was a larger indicator of higher performing than their own company’s mutual fund star rating.
That does not mean that accounts that are managed don’t have some value. In fact, one new study showed that those who used account management will earn 3.32% more than the “do-it-yourselves” fees. That is possibly due to investors chasing performance, becoming aggressive when the market is performing well and conservative when market is down, and leads to selling low and buying high. Many investors sometimes leave money in cash, due either because of the tendency of investors to chase performance and this is the default option when they start, and they never changed it or being unskilled with investing making them afraid to do anything else.