Yes, I truly believe that the 401k market is broken.broken-401k-market

That’s right, broken.

Sound familiar? You go to the enrollment meeting and meet a very knowledgeable and helpful 401k service provider.  That is, of course, if you’re one of the lucky ones (you could’ve just been mailed an enrollment packet).

They help you choose the fund line-up that suits your risk and objectives and BOOM – you’re successfully invested in your 401k.

Then, 4 years goes by.  You go home and see that the Dow Jones Industrials dropped over 400 points that day and for a brief, fleeting moment, you think to yourself, “hmmm…what should I do with my 410k allocation?”

Its now 2AM and you can’t sleep.

So you finally find the website and password information to your 401k account.  You login and surf around your investment choices, reallocate your account and peacefully drift off to sleep because you have the false sense that having taken action was actually an effective, prudent action.

Chances are, if you’re like most other investors, you’ve shifted your assets at precisely the wrong time – into precisely the wrong investments.

This is affectionately dubbed “Investor Bad Behavior”, and is a very common occurrence as tracked by DALBAR.

Broken.

A better 401k model is an actively managed 401k that will grow and change – as you grow and change – and as the market grows and changes.  Do you think, in the 401k example above where the service provider assisted in the initial investment allocation, that advisor would’ve recommended a different allocation in the fall of 2008 versus what might have been recommended a mere 6 months later when the markets were heading back into Bull market territory and with fear and losses far behind?

You better believe they would’ve. So how is it that 401k investors allocate their accounts and then leave them on auto-pilot?

The problem.

Very few 401k plans offer an actively managed option. If this sounds familiar, and your balance is a substantial amount of your savings, you should have an advisor actively manage your allocation – but remember to keep your fees in check.

You see, in 2008 the average investor lost 42%; Alphavest’s worst performing (actively managed models) lost slightly over 7%. Take the Alphavest Challenge to see how actively managed low fee models compare to your investments.

The solution.

Since you’re not going to convince your employer to switch 410k providers, be sure to hire an experienced advisor.

And remember: if you’ve left your 401k behind IT’S TIME to track it down and ROLL IT OVER to an IRA. Leaving a 401k behind rarely makes sense, so identify an active manager with low fees and move on.