Can Automated Investing Help Lead to Better Outcomes?
From the January 2018 issue of Hark!
Participants who try to “time” the market—making investment changes in reaction to market fluctuations—generally have lower returns. Using help—either in the form of a managed account or a financial planner—helps participants stay committed to a diversified, long-term investing plan, avoiding the tendency to react to short-term changes in performance.
Market Timing Hurts Results
A study by Aon Hewitt and Financial Engines1 found that participants using "help" (e.g., a managed account option or financial planning services) outperformed those not using "help" by more than an average of three percentage points a year, net of fees. Other studies support these findings, such as the annual DALBAR Quantitative Analysis of Investor Behavior, which indicates the average investor only earns about half of what he or she would have earned by buying and holding an S&P index fund (4.67% vs. 8.19%). DALBAR attributes this underperformance to investor behavior.
The impact of help is significant. Three percentage points may not sound like much, but over a 30-year investing period, it adds up to approximately $300,000, if you saved $500 for retirement each month ($704,275 vs. $407,688 account value).2
Wespath offers two paths to investing help—at no additional charge to you.3
EY Financial Planning Services helps “do-it-yourself” investors, who like to have some control over their investments, choose an appropriate investment mix that considers their goals and time horizons.
LifeStage Investment Management helps “do-it-for-me” investors automate investing decisions based on personal information, such as risk tolerance, age and account balance.
Professional help can make a significant difference in your retirement readiness. Find out more about the help available to you through Wespath at wespath.org/retirement/services.
1 Help in Defined Contribution Plans: 2006 through 2012
2 Assumes 8% rate of return for market and 5% rate of return for individuals without help.
3 Costs for EY Financial Planning and LifeStage services are included in Wespath’s operating expenses that are paid for by the funds. EY Financial Planning Services are available to active participants and surviving spouses with account balances, and to retired and terminated participants with account balances of at least $10,000.
4 Source: DALBAR, Lipper universes of mutual funds with strategies similar to the applicable Wespath funds. Benchmarks are S&P 500 Index for stocks, Bloomberg Barclays Aggregate Bond Index for bonds. Blend is 65% S&P 500/35% BB Agg; Wespath is its Multiple Asset Fund. All fund returns from 01/01/07 to 12/31/16 net of fees.
5 Wespath’s Fixed Income Fund typically invests approximately 20% in non-U.S. debt.
Note: Historical returns are not indicative of future results. See Investment Funds Description for more information.