Quantcast
The MFWire
Manage Email Alerts | Sponsorships | About MFWire | Who We Are

Subscribe to MFWire.com's News Alerts [click]

Rating:The Unflappable 401k Participant: Gotta Love Inertia Not Rated 5.0 Email Routing List Email & Route  Print Print
Wednesday, October 29, 2014

The Unflappable 401k Participant: Gotta Love Inertia

News summary by MFWire's editors

Don't believe everything you read about 401(k) investors (industry insiders call them "participants"), at least when it comes to their investing woes.

In his column this morning resident Morningstar guru John Rekenthaler picks apart the all-too-common "myth of the dumb 401(k) investor," recently repeated by RIA star Ric Edelman in an interview with CNBC. Edelman and others complain that 401(k) plan participants, like many other investors, practice the widespread and widely mocked "buy high, sell low" investing style.

Don't fret, fundsters. Ask your defined contribution investment-only (DC I-O, the name of the channel where asset managers sell their wares through 401(k)s and other DC plans) colleagues about the power of inertia.

Edelman points to recent numbers from the 401(k) trading index published by Aon Hewitt (a consulting giant that serves as a recordkeeper to large and jumbo 401(k) plans). Aon Hewitt's figures do show a spike in 401(k) trading activity this month around the the market's volatile days, and that spike does show 401(k) participants selling fallen equities and buying fixed income instead.

Yet, as Rekenthaler notes, "even on the heavy trading days, more than 99.9% of 401(k) assets stay put." Very few 401(k) participants actually move their money much, ever ... because, as the 401(k) insiders now obsessed with behavioral finance know, inertia is a powerful, beautiful thing. 401(k) participants tend to fire and forget, to pick (or be defaulted into) their investment choices when they start contributing to the plan, and then never (or rarely) change those allocations, even as they continue deferring money out of every paycheck.

"401(k) activity was a side not to the stock market's trading volume," Rekenthaler writes. "401(k) investors, by and large, are difficult to rouse. They tend to be among the last to respond to heightened volatility, not the first." 

Edited by: Neil Anderson, Managing Editor


Stay ahead of the news ... Sign up for our email alerts now
CLICK HERE

5.0
 Do You Recommend This Story?



GO TO: MFWire
Return to Top
 News Archives
2018: Q4Q3Q2Q1
2017: Q4Q3Q2Q1
2016: Q4Q3Q2Q1
2015: Q4Q3Q2Q1
2014: Q4Q3Q2Q1
2013: Q4Q3Q2Q1
2012: Q4Q3Q2Q1
2011: Q4Q3Q2Q1
2010: Q4Q3Q2Q1
2009: Q4Q3Q2Q1
2008: Q4Q3Q2Q1
2007: Q4Q3Q2Q1
2006: Q4Q3Q2Q1
2005: Q4Q3Q2Q1
2004: Q4Q3Q2Q1
2003: Q4Q3Q2Q1
2002: Q4Q3Q2Q1
 Subscribe via RSS:
Raw XML
Add to My Yahoo!
follow us in feedly




©All rights reserved to InvestmentWires, Inc. 1997-2018
14 Wall Street | 20th Floor | New York, NY 10005 | P: 212-331-8968 | F: 212-331-8998
Privacy Policy :: Terms of Use