Tuesday, April 17, 2007

401K - How Do People Really Invest?

Have you ever been curious to know how people invest their 401K funds? I know I have. Several months ago I was appointed to my company's 401k management committee and with that appointment, I received access to my company's information. Much of that information is extremely confidential, however, I was amazed to find out that a lot of it is actually available to the public through the company's various regulatory filings.

I found out about this when I invited some new 401k providers to bid on our plan. To my surprise, when they arrived they knew exactly what funds we offered to our employees, how those funds performed and how much money was invested where... yes. I was surprised too. Then they showed me the forms, and all the data was right there in black and white.

I thought I would share some of this publicly available information with my readers, as it might give you some insight as to the way people plan for retirement and invest their retirement assets.

The figures I share below include only current employees (which own only a small minority of plan assets). The rest of the plan assets are owned by former employees who have not rolled-over their 401k's (see my post: 6 Reasons to Roll-Over Your 401K)

General Characteristics:

% Participants: approx. 80% of employees
Average plan balance: $42,000
Median employee balance: $29,700
Standard deviation is: 41,000 (which tells you that we have both very high and very low balances)
Average number of funds per individual: 4.5

Asset Allocation:

Money Market: 0% (that is excellent! I was sure there would be a few poor investors in the bunch - but this figure reassures me that our employees are more sophisticated than I gave them credit for)
Bonds: 17.5%
Large Cap Stocks: 4.5%
Small Cap Stocks: 16.3%
Mid Cap Stocks: 8.3%
International Stocks: 7.6% (this number is probably too low, and when we select our new vendor, I will ensure that in an upcoming educational session our advisors cover the diversification benefits of investing in international stock markets)
Value Stocks: 6.3%
Contrafund: 6.3% (an actively managed equity fund that tries to make contrarian investments)
Balanced Equity Fund: 9.10%
Equity Growth Fund: 24.1% (all in a single fund. I have yet to examine if any performance chasing is involved, but this is by far the largest single fund in our 401k plan).

Overall, as an organization we have a fairly diversified portfolio. The individual story is different, alas, that information is confidential and I am not able to share it. Nevertheless, on the whole, this report paints a better picture than I was expecting.

Another very encouraging sign about our plan participation is that in recent days a number of employees approached me proactively to ask how our search for a new 401k provider was coming along, and to offer their ideas, suggestions and concerns. All of these are very welcome signs.

In the coming weeks I will continue to post stories about our search for a new 401k vendor and the various decisions that we make along the way. Stay tuned.

1 comment:

KMC said...

This is good information. I'm looking forward to reading more in the coming weeks. I'm pretty surprised about no one being in the money market, but I don't know about the employees in your company.