mutual funds | Financial Planner | Retirement Planning | Korving & Company Suffolk & Virginia Beach

Mutual Funds Guide: What Are They?

A mutual fund is an investment vehicle that is made up of money contributed by many people for the purpose of investing in stocks, bonds, real estate or other kinds of investment vehicles including money market instruments.

Mutual funds are operated by money managers who make the actual investment decisions and who attempt to provide capital gains and income to the investors.

One of the main advantages of mutual funds is that they give small investors access to professionally managed, diversified portfolios of equities, bonds and other securities, which would be quite difficult (if not impossible) to create with a small amount of capital.

When a mutual fund sells a security like a stock or bond or collects income such as a dividend or interest payment these are passed along to the shareholders of the fund.

Passive vs. Active Mutual Funds

A passive mutual fund invests in a portfolio that mirrors the component of a market index. For example, an S&P 500 index fund is invested in the 500 stocks of Standard & Poor’s 500 Index. There is no attempt made to try to determine which stocks are expected to do well and which are not.

Actively managed funds are managed by an individual manager, co-managers, or a team of managers. The mangers try to buy stocks that they think will outperform the market.

The costs associated with passive investing are lower than the costs of active management. Active managers attempt to justify their higher costs by doing better in either up or down markets.

Cost Structure

Sales Charges

Some funds (load funds) sold by brokers, insurance agents or investment advisors have a front-end sales charge which is paid by the investor and passed along to the seller for his services. The charge is deducted from the amount being invested.

Other mutual funds (no load funds) are offered directly to the investing public by fund companies, or they are offered to investors by financial intermediaries who have a compensation arrangement (hourly, flat fee or a percentage of assets) with the purchaser. In this case, a sales charge is not involved, and the investor fully invests his or her available money into funds sponsored by a no-load fund company.

There are several other arrangement by which load mutual fund companies compensate sales people that are less obvious than front end sales charges in a variety of fund share classes – A, B and C. Many fund families offer special no-load share classes (F-1, F-2) for fee-based advisors who want to use their funds but do not want their clients to pay a sales charge. Before anyone invests in a mutual fund it is important that the investor understands how the broker, salesperson or investment advisor is compensated.

Expense Ratio

A mutual fund’s expense ratio is the amount of money that the fund charges for running the fund. It is usually shown as a percentage of the fund assets. All mutual funds charge investors a fee for their services. In general, passively managed index funds have a lower expense ratio than actively managed funds and bond funds have a lower expense ratio than stock funds.

Redemption Fee

Many mutual funds are charging a fee if the investor withdraws his money from a fund within a certain specified time of making an investment. This is designed to discourage market timing which can complicate the process of managing a fund.

Popular Mutual Funds

There are more mutual funds that there are stocks on the NY stock exchange. To make sense of the variety here are some of the most common fund types.

• Money market funds. These are funds that invest in very short term, liquid securities that offer a safe place to put cash. They offer a very low rate of return but try to maintain a net asset value of $1 per share.

• Bond funds invest primarily in fixed income securities. These could be government bonds, corporate bonds, municipal bonds, convertible bonds or mortgage backed securities.

• Stock funds (equity funds) invest primarily in stocks. They are subdivided into many categories according the size of the companies they invest in (large cap, small cap), the investment style (growth, value) and geography (US, Foreign).

• Balanced funds combine the features of stock and bond funds.

• Specialty funds may invest in certain industries (technology, drugs), countries (Britain, Korea) or real estate (REITs).

Well balanced portfolios frequently include funds from many of these categories in proportions appropriate to the risk tolerance of the investor.

Traditional Funds vs. ETFs

When people think about traditional mutual funds they typically think about funds known as “open ended funds.” They are the most commons funds. Shares of the fund are bought or sold though the fund company. There are no limits to the number of shares that can be issued and shares prices are determined once a day, after the market closes. At that point the total value of the assets in the mutual fund are determined and divided by the number of shares. This is the “net asset value” (NAV) and everyone who buys a share on that day pays the same price and everyone who sells also gets the same price, not matter what time of the day the order to buy or sell has actually been entered.

“Exchange Traded Funds” (ETFs) are newer but have become popular because they are bought and sold like a stock and are traded on major exchanges. The price of the shares can fluctuate during the day and the price that an investor pays for the shares can be different from minute to minute, just like the price of a stock will fluctuate during the day. That means that an ETF can be bought in the morning and sold in the afternoon for a profit or a loss depending on the change in value. The market price of an ETF is kept near the NAV by large institutional investors who will detect any difference between the NAV and the actual share price and use “arbitrage” to make that difference go away.

Because ETFs are more flexible in terms of trading strategy, they have become very popular with many active investors and speculators. In addition, because many ETFs are “passive” funds they often have lower expense ratios than many traditional mutual funds.

There are a number of other issues that an investor should be aware of with ETFs such as liquidity, commissions to trade, the bid-asked spread, and the viability of any specific ETF.

Final Thoughts on Mutual Funds

That wraps up our guide on mutual funds, what they mean, the most popular types of mutual funds, and traditional funds vs ETFs. As always, consult your investment advisor for more information. You can also contact us through our contact page.

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Mutual Fund Shares and Why They’re Important

Mutual fund share classes are little understood by the investing public, but they are important because they determine how much the investor pays in fees.

Fund classes are identified by an alphabetical letter that follows a mutual fund’s name in most newspapers.

Mutual fund “A” share classes typically have a “front-end load,” a sales charge payable when you buy the fund. This fee is used to pay the brokerage firm and part of it goes to the broker who sells the fund.

The amount of the load depends on the kind of fund – bond funds generally have lower loads than stock funds – and the amount of money invested. The more money that’s invested, the lower the fee. Known as “break points,” they refer to points at which front-end charges go down. For example, the front-end load for the Growth Fund of America class A shares is 5.75% on investments up to $25,000. But if you invest $1 million dollars or more the front-end load is 0%.

Mutual fund “B” shares typically have a “back end load” payable when you redeem the shares. These decline over a period of years (usually 6 to 8 years) until they finally disappear.

Both “A” and “B” shares usually have an “12b-1” marketing fee, generally 0.25%, charged annually.

Class “C” shares have no front-end load, a small back end load, usually 1%, that goes away after 1 year. However, they have higher 12b-1 fees, typically 1%.

There are other share classes such as I, Y, F-1, F-1, F-2. In fact, some funds have as many as 18 share classes. They are all the same fund; the only difference is the fee charged to the investor.

Many fund families offer “institutional” share classes that are only available to certain investors. Institutional shares are purchased by businesses who are in the investing business such as banks, pension funds, insurance companies and registered investment advisors (RIAs) who buy them as agents for their clients. This is one of the benefits of working with an independent RIA who has access to lower cost funds, load waived funds and no-load funds that are often not offered by the major Wall Street firms.

The Trouble with 401(k) Plans

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The 401(k) plan is now the primary retirement plan for employees in the private sector and Ted Benna isn’t happy. Benna is regarded as the “father” of the 401(k) plan but now he calls his child a “monster.”

There are several problems modern with 401(k) type plans.

They are too complicated. The typical 401(k) plan has dozens of investment options. These are often included to satisfy government regulatory demands for broad diversification. For the plan sponsor, who has a fiduciary responsibility, more is better. However, for the typical worker, this just creates confusion. He or she is not an expert in portfolio construction. Investment choices are often made when an employee gets a new job and there are other things that are more pressing than creating the perfect portfolio. Which leads to the second problem.

Employees are given too little information. Along with a list of funds available to the employee, the primary information provided is the past performance of the funds in the plan. However, we are constantly reminded that past performance is no guarantee of future results. But if past performance is the main thing that the employee goes by, he or she will often invest in high-flying funds that are likely to expose them to the highest risk, setting them up for losses when the market turns.

There are no in-house financial experts available to employees. Employee benefits departments are not equipped to provide guidance to their employees; that’s not their function. In fact, they are discouraged from providing any information beyond the list of investment options and on-line links to mutual fund prospectuses. Doing more exposes the company to liability if the employee becomes unhappy.

What’s the answer? Until there are major revisions to 401(k) plans, it’s up to the employee to get help. One answer is to meet with a financial advisor – an RIA – who is able and willing to accept the responsibility of providing advice and creating an appropriate portfolio using the options available in the plan. There will probably be a fee associated with this advice, but the result should be a portfolio that reflects the employee’s financial goals and risk tolerance.

Separately Managed Account

A Separately Managed Account (SMA) is an investment account managed by a professional investment manager that can be used as an alternative to a mutual fund. They provide diversification and professional management. But they differ from mutual funds in that an SMA investor owns individual stocks instead shares in a fund.

Here are some of the benefits of SMAs.

Customization: Investors in SMAs can usually exclude certain stocks from their portfolio. They may have an aversion to certain stocks, such as tobacco or alcohol. Or they may have legal restrictions on owning certain stocks. SMAs allow some customization that’s not available in mutual funds.
Taxes: Investors in SMAs can take advantage of tax loss harvesting at the end of the year by instructing a manager to sell certain stocks to reduce capital gains taxes. In addition, an SMA has another advantage over mutual funds in that each stock in an SMA is purchased separately. Mutual fund investors are liable for “embedded capital gains” even if the shares were purchased before the investor bought the fund shares.
Transparency: You know exactly what you own and can see whenever a change is made in your account. Mutual fund investors don’t see the individual securities they own or what changes are being made by the portfolio manager.

These are features that are attractive to certain investors. However, they are not for everyone. Most SMAs require minimum investments of $100,000. That means that they are only appropriate for high net worth investors who will typically use several SMA managers for purposes of diversification. In addition, the fees associated with SMAs are often higher than fees for mutual funds.

For more information, please contact us.

Is your money going in the right direction?

An acquaintance recently asked me how his money should be invested. With banks paying virtually zero on savings, it’s a question on everyone’s mind. Should he invest in stocks or bonds? If it’s stocks, what kind: Growth, Value, Small Cap or Large Cap, U.S. or Foreign? The same can be asked of bonds: government or corporate, high yield or AAA, taxable of tax free? That’s a question that faces many people who have money to invest but are not sure of where.

It’s a dilemma because we can’t be sure what the future holds. Is this the time to put money into stocks or will the market go down? If we invest in bonds will interest rates go up … or down? How about investing in some of those Asian “Tigers” where economic growth has been higher than in more developed countries?

There is no perfect answer. We are not gifted with the ability to read the future. And what is this “future” anyway? Next week? Next year? Or 20 years from now when we will need the money for retirement?

We know that generally, people who own companies usually make more money that people put their money in the bank. Another word for “people who own companies” is “stockholders.” That’s why, over the long term, stockholders do better than bondholders. On the other hand, bonds produce income and are generally lower risk than stocks. So my first answer to the question I was asked is: invest in both stocks and bonds.

Choosing the right stocks and bonds is a job that is best left to professionals. That’s the benefit of mutual funds. Mutual funds pool the money of many investors to create professionally managed portfolios of stocks and bonds. They are an easy way of creating the kind of diversification that is important for reducing risk.

To circle back to the original question our friend asked: the answer is to create a well diversified portfolio. We know that some of the time stocks will do better than bonds, and vice versa. We know that some of the time foreign markets outperform the U.S. market. We know that some the time Growth stocks will do better than Value stocks. We just don’t know when. So we select the best funds in each category and measure the over-all result. With so many funds to choose from, the smart investor will get help from a Registered Investment Advisor like the folks at Korving & Company.

Call us for more details.

How does your financial advisor get paid?

No one expects their professional service provider to give their services away for free. Doctors don’t, lawyers don’t, CPAs don’t nor do financial advisors. However, in the financial services industry often what you actually pay is not clear.

Cerulli Associates surveyed investors and found that most investors wanted to understand how their advisors were getting paid. They wanted “transparency.”

“Helping investors understand the full extent of an advisor’s potential revenue streams has been a persistent challenge for both advice providers and advisors, and has become even more complicated with the ongoing evolution of integrated wealth management conglomerates,” Smith explains.
“The financial industry was built around the premise that investors understand the fees they pay and sign documents affirming their awareness,” Smith continues. “Cerulli’s research indicates that investors who truly comprehend the entirety of their costs are more the exception than the rule. The overall expenses of pooled investment vehicles, including management fees and other embedded fees such as 12b-1s, are essentially nonexistent to many investors-if they do not see a line item deduction from their accounts, they do not recognize a transfer of wealth from themselves to their advisor or provider.”

Even that last sentence can add to the confusion if you aren’t very familiar with the terminology of the investment industry, with terms like “pooled investment vehicles,” “embedded fees,” and “12b-1s.” To better understand how (and from where) financial advisors are paid, here’s a brief list:

• “Commissions:” when you buy of sell a stock, bond, or fund, you pay the broker a commission. This also applies to insurance products such as life insurance and annuities. Broker commission formulas for stocks are often based upon the stock’s price and trading volume. Commissions for insurance products and annuities are generally a fixed percentage of the size of the policy being sold, but they can be as high as 10{030251e622a83165372097b752b1e1477acc3e16319689a4bdeb1497eb0fac93}-15{030251e622a83165372097b752b1e1477acc3e16319689a4bdeb1497eb0fac93} for some products. Commissions for bonds are discussed below.

• “Mark-up” or “mark-down:” this typically applies to the purchase or sale of bonds, and is the difference between the market price of a bond and what an investment firm offers an investor. In other words, it is the difference between what the bond is actually worth and what you can buy or sell it for. The mark-up or mark-down formula is based upon the number of bonds being bought or sold, their price and their bond rating.

• “Load:” a sales charge that is assessed when purchasing a mutual fund. Some load fees are charged up front (referred to as a “front end load,” often seen with A share class mutual funds bought or sold via a broker), when sold (referred to as a “back-end load,” often seen with B share class mutual funds bought or sold via a broker), or as long as the fund is held (referred to as a “level load,” often seen with C share class mutual funds bought or sold via a broker). The load you pay is passed along to the broker. Front end loads are usually between 3{030251e622a83165372097b752b1e1477acc3e16319689a4bdeb1497eb0fac93} – 8{030251e622a83165372097b752b1e1477acc3e16319689a4bdeb1497eb0fac93}, with 5{030251e622a83165372097b752b1e1477acc3e16319689a4bdeb1497eb0fac93} being fairly typical. Back end loads are the most confusing, and (thankfully) are being eliminated by many fund companies. In very general terms (for the sake of this article), they don’t charge you a front end load, but if you want to sell the fund within 5 or 6 years of purchasing the fund, they will hit you with a fee (called a “deferred sales charge”) of between 1{030251e622a83165372097b752b1e1477acc3e16319689a4bdeb1497eb0fac93} – 5{030251e622a83165372097b752b1e1477acc3e16319689a4bdeb1497eb0fac93}, depending on how soon you sell it (with the higher fee coming the earlier you sell it). Oh, and on top of that, they typically also charge you a 12b-1 fee (discussed next) of 1{030251e622a83165372097b752b1e1477acc3e16319689a4bdeb1497eb0fac93}. Level loads typically don’t charge a front end load or a back end load, but they do maintain a 1{030251e622a83165372097b752b1e1477acc3e16319689a4bdeb1497eb0fac93} 12b-1 fee for as long as you own the fund.

• “12b-1 fee:” an annual fee, usually 0.25{030251e622a83165372097b752b1e1477acc3e16319689a4bdeb1497eb0fac93}, paid by the mutual fund to the broker to help the fund market its products. It’s often referred to a “trailer.” As mentioned above, for B and C share class mutual funds, this fee is typically a much higher 1{030251e622a83165372097b752b1e1477acc3e16319689a4bdeb1497eb0fac93}.

• “Management fee:” this is the fee that an investment manager charges for creating and managing a portfolio of securities.

A “Fee Only” investment advisor’s only compensation is the management fee. This eliminates the conflict of interest inherent in the other types of compensation such as commissions, loads and trailers. It provides an incentive for the Fee Only advisor to shop for the lowest cost investment products for his clients.

Why roll your 401(k) over when you retire?

According to an article in 401(k) Specialist Magazine, 401(k) providers favor proprietary products. What does this mean to the typical worker? Here’s the bottom line:

“Mutual fund companies that are trustees of 401(k) plans must serve plan participants’ needs, but they also have an incentive to promote their own funds.
The analysis suggests that these trustees tend to favor their own funds, especially the poor-quality funds.”

The article goes on to say that these fund companies often make decisions that appear to have an adverse affect on employees’ retirement security.

The investment industry is, unfortunately, rife with conflicts of interest and bad apples. That is why a prudent investor should work with a trusted investment professional who is a fiduciary. A fiduciary has an obligation to place the client’s interests ahead of his own. As a rule of thumb, a fee-only, independent, Registered Investment Advisor, who does not work for one of the large investment firms that have to answer to public shareholders, and who has access to virtually all investment vehicles, has fewer conflicts.

As we mentioned in a recent article:

A fee-only RIA works for you. Stockbrokers, insurance agents, even mutual fund managers, work for the companies that pay them. They are legally required to work in the best interest of their employers, not their clients. Some of them do try to work in their clients’ best interests, but there can be large financial incentives to do otherwise. A fee-only RIA works only for you. We act in your best interest and use our expertise to allow you to take advantage of opportunities in good markets and weather the bad ones.

This gets back to the original question. Rolling your 401(k) into an IRA with someone who isn’t trying to get you to invest in “poor quality funds,” does not have a conflict of interest, and is legally obligated to put your interests ahead of his own is a good reason to roll your 401(k) into an IRA.

Successful and investing and emotional control

One of the big benefits of professional money management is “emotional control.”

Emotional control is the ability to control one’s emotions in times of stress. Napoleon once said that “The greatest general is he who makes the fewest mistakes.” There is a similarity between war and successful investing. Both require the ability to keep a cool head at times of high stress.

There is another old saying in the investment world: “Don’t confuse brains with a Bull Market.” When the market is going up, it’s easy to assume that you are making smart investment decisions. But your decisions may have nothing to do with your success; you may simply by riding the crest of a wave.

That’s when people become overconfident.

When the market stops going up, or the next Bear Market begins, the amateur investor allows fear to dominate his thinking. The typical investor tend to sell as the stock market reached its bottom. In fact, following the market bottom in early 2009, even as the stock market began to recover, investors continued to sell stock funds. Since then the market has doubled.

Professional investors are not immune to emotion, but the good ones have developed investment models that allow them to ride through Bear Markets with moderate losses and ride the rebound up as the market recovers. It is that discipline that allows them to make fewer mistakes and, like Napoleon’s general, come out ahead.

Active vs. Passive Investing

There is a great deal of misperception about the merits of passive vs. active investing.

The Difference Between Passive and Active Investing

First, let’s define terms for people who are not familiar with investment styles. Passive investing is buying all the stocks in an index, like the S&P500. Since there is no research involved and the only time an index fund makes a change is when there’s a change in the index, costs are kept low. Active investing, on the other hand, means that a fund manager looks at the stock market and buys those stocks he thinks will go up and avoids those that he believes will go down. Obviously he won’t be right all the time, but if he’s a good manager his selection will result in a fund that will do better than average.

That’s a simple explanation. It doesn’t get into factors such as value vs. growth, risk adjusted returns and other nuances. But it’s the basic concept.

Much is made about expense ratios and average returns. A lot of this confusion is the result of marketing by John Bogle, the founder of Vanguard Funds who made a fortune by promising his clients that they would never do better than average … and that was a good thing.

So why didn’t investing legend Warren Buffett give up stock picking and put his money in an index fund? Because he’s a good stock picker who can add value and get a better return on his money than a stock index. And Buffett isn’t the only one.

Comment from Oppenheimer Funds.

Indexing clusters investment assets in securities which represent past success, are widely owned, and often fully valued. Investing is about the future. Good active investors are adept at uncovering future success. Compounded over a long time horizons, the difference in so called “terminal wealth” can be very large between passive approaches, average active approaches, and above average active approaches.

Translation: Most indexes, like the S&P 500, represent the best performing stocks of the past, not necessarily the best ones to own in the future.

There are money managers who can add value to a portfolio, a better risk-adjusted return than the market. And there are managers who do worse. Knowing the difference requires years of research and expertise. That is what we at Korving & Company provide to our clients. We create a diversified portfolio of mutual funds tailored to the needs of our clients using funds managed by individuals who have demonstrated that they can add value over and above an index.

Without that, many investors are better off being average.

Creating a better investment portfolio

For many people, “investing their portfolio” means picking out some mutual funds and then leaving them alone. With tens of thousands of funds available most people find selection too confusing. As a result, they “outsource” their investments to a few well know names in the mutual fund industry. But there is a better alternative to turning your financial future over to an organization at the other end of an 800 number or an Internet connection.

The decisions you make as you grow your retirement portfolio has a profound effect on your future. It will determine how well you will live in retirement. It will determine whether you spend your retirement sitting on your porch in a rocking chair, or vacationing in Hawaii. It’s the difference between steak or hot dogs for your cookout.
There is lots of “professional” advice out there. Much of that advice is offered by people who are not trained investment professionals. They are salesmen for large investment firms. Their pay is based on how much they sell. Many of these same salesmen often fail to understand the products they sell, with disastrous results.

Korving & Company is different. We are a team of professional investment managers with decades of experience managing the portfolios of clients ranging from young couples to wealthy families and institutions. We do the “heavy lifting” for those who want professionally managed portfolios.

We’re a father-son team who care for – and take care of – our clients. We are fiduciaries; we put our clients’ interest ahead of our own. We specialize retirement investing, provide estate planning assistance, and help prepare the next generation for the challenges ahead. If your financial future is important to you, check us out. For more information, send us a message or give us a call. We would like to hear from you.

Investment Mistakes Millionaires Make

Think millionaires don’t make investing mistakes? Think again. The deVere Group asked some of its wealthy clients to tell them about the biggest investing mistakes they made before getting professional guidance. It demonstrates that the rich are not that much different. Keep in mind that many people get rich by starting a successful business or inheriting money. That does not make them smart investors.

Here’s a list of five common investment mistakes, and how to avoid them:

5. Focusing Too Much On Historical Returns

Too often investors look at stocks, bonds and mutual funds in the rear view mirror, expecting the future to be a repeat of the past. This is rarely the case. It’s why mutual fund prospectuses always state “past performance is no guarantee of future results.” Too many investors buy into last year’s top investment ideas, only to find that they bought an over-priced lemon. Investment decisions need to be made with an eye to the future, not the past.

That’s why we build portfolios based on what we think the markets (& investments) will do in the next 6-36 months. Of course we also look at track records, but in a more sophisticated way than buying last year’s winners. And when investing in mutual funds, it’s vitally important to examine who is responsible for the fund’s performance and if that person’s still managing the fund.

4. Not Reviewing the Portfolio Regularly

Things change and your portfolio will change with it, whether you watch it or not. If you don’t watch it you could own GM, Enron or one of the banks that closed during the crisis in 2008. Every investment decision needs to be reviewed. The question you always need to ask about the investments in your portfolio is “if I did not own this security would we buy it today?” If the answer is “no,” it may be time to make changes.

We review your portfolios regularly, to make sure you’re on track with your stated goals. We also offer regular reviews with our clients and prepare reports for them to show how they are doing.

3. Making Emotional Decisions

The two emotions that dominate investment decisions are greed and fear. It’s the reason that the general public usually buys when the market is at the top and sells at the bottom.

We help take the emotion out of investing. We have a system in place that helps keep emotion out of the equation.

2. Investing Without a Plan

Most portfolios we examine lack a plan. In many cases they are a collection of things that seemed like a good idea at the time. This is often the result of stockbrokers selling their clients investments without first finding out what they really need.

We always invest with a plan. You tell us your goals, timeline, etc and then we use that as an investment guide. We don’t care about beating arbitrary indexes; we care about helping you achieve your plans with the least amount of investment risk possible.

1. Not Diversifying Adequately

One of the biggest risks people make is lack of diversification. It’s called putting all your eggs in one basket. This often happens when people work for a company that offers stock to employees via their 401(k) or other plan. Employees of Enron, who invested heavily in their own company via their retirement plan, were devastated when their company went broke. Sometimes investors own several mutual funds, believing that they are properly diversified only to find that their funds all do the same thing.

Nobody has ever accused us of being under-diversified. We champion broad diversification in every one of the MMF (Managed Mutual Fund) portfolios we create. We choose funds that invest in different segments of the investment market. We own many assets classes (bonds, stocks, etc.). We diversify geographically, including some overseas funds. And we have style diversity: growth vs. value, large cap. vs. small cap. With rare exceptions, there is always something in our portfolios that’s making you money.

401(k) Balances Hit Record High

From CNN

The average 401(k) balance hit $89,300 at the end of the year, up 15.5{030251e622a83165372097b752b1e1477acc3e16319689a4bdeb1497eb0fac93} from $77,300 in 2012, according to an annual tally by Fidelity Investments. Most of the boost came from stock market gains as all three major stock indexes ended the year more than 20{030251e622a83165372097b752b1e1477acc3e16319689a4bdeb1497eb0fac93} higher.
People on the verge of retirement, ages 55 to 64 years old, saw their nest eggs grow to an average balance of $165,200 from $143,300 in 2012, Fidelity said. Savers with both a 401(k) plan and Individual Retirement Account managed by Fidelity had larger nest eggs, with an average balance of $261,400, up from $225,600 in 2012.

The 401(k) has replaced pensions as the way most workers save for retirement. That’s a problem. Most employees spend almost no time actually choosing the right funds in their 401(k). It’s the reason that so many Enron employees lost their retirement when that company went broke. It’s the reason why so many people lost so much in the crash of 2008 – 2009.

Even when their 401(k) holds most of their retirement savings, employees pay little attention. The typical worker is given a list of mutual funds available to the plan and told to check off some boxes to say where his money is going to be invested. The employer does not provide guidance, neither does the investment firm that sold the plan. The typical “Big Box” broker is not paid to provide guidance, and typically doesn’t.

There is help for the worker who wants his money to grow while controlling risk. There are a few RIA firms that can help. If you are one of those whose 401(k) is serious money and you would like to get help, give us a call.

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