Vanguard Study Makes Case For ETFs and Active Management of 401k Plans | ETF Trends

The mutual fund heavyweight Vanguard recently released a study verifying that most investors pay very little attention to their retirement plans and are under-diversified. As Americans are living longer and must have less dependency on social security, proper management of company sponsored retirement plans will become that much more of a priority. Look for:

  • 401k plans to offer ETFs as investors will demand more choices with fewer expenses
  • plan participants to seek out professional management of their 401k while still employed in hopes of maximizing returns safely

The fund firm looked at more than five million people with
employer-sponsored defined-contribution plans or individual retirement
accounts that it administers and found that during the first six months
of 2005, only 10% of investors in the defined-contribution plans and 8%
of IRA owners made any trades within the accounts.

Vanguard also found that IRA holders are about twice as likely to
invest in a single asset class or single fund as are those with
defined-contribution plans. The typical IRA holder chooses just one
fund, compared with the three funds typically held in a
defined-contribution plan, such as a 401(k) retirement savings account.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.