401(k) investors may see returns suffer

Sales pitches bombard us every day with advice on what to eat, what to wear and what to do with our money. While savvy consumers are quick to duck many of these distractions, investors looking for advice on how to save for retirement should think twice before tossing aside the colorful brochures of their 401(k) managers.

Many 401(k) retirement plans offer investors access to online or over-the-phone chats with someone who can answer investment questions, and it appears that those who don't ask for help can end up with less money in their portfolios.

A new Charles Schwab examination of the 401(k) plans it oversees found that investors who rely on some professional advice for investment decisions enjoy greater returns than those who go it alone.

The investors who used an independent investment adviser that Schwab makes available to its 401(k) participants saw an average 14.1 percent return last year. Those who didn't solicit advice, at least from the adviser Schwab provides, saw only an 11.1 percent return. A similar gap in returns occurred in 2005.

Jim McCool, executive vice president of Schwab Corporate & Retirement Services, points out that it is well known that investors are leaving money on the table if they don't put enough into their 401(k) to merit a full matching contribution from their employer. But, he said, too few investors realize that without some professional hand-holding, they could also be giving up some money.

The services can help investors set up investments or check up on them as the years pass, he said.

"It's about helping them build a portfolio or it's about providing a retirement fund that automatically adjusts its return characteristics as the person gets older," McCool said, referring to so-called target-date funds, which gradually shift their investments into more conservative footing as a person ages and approaches retirement.

And investors who pride themselves on making sound financial decisions should note that in many cases the advice offered through their 401(k) plan doesn't carry any additional costs because the service is wrapped in a fund's overall expenses.

Jeff Tjornehoj, an analyst at fund tracker Lipper Inc., said that while many individual investors do just fine on their own, those who don't at least consider seeking advice could miss out.

"These differences — two, three or four percentage points — aren't going to make or break you in one year but if you compound that over decades then the differences do add up. I think it's fair to say by and large people should be asking for advice where appropriate," he said.

Even asking some simple questions can have dramatic effects on an investors' success. Investors who might think to diversify their holdings by putting 10 percent of their money into 10 funds might quickly be told this isn't necessarily the best idea.

"A lot of investors look at the 401(k) platform and they may not understand that if you are investing in a target-retirement fund that should be the only fund you put money into as far as your 401(k)," Tjornehoj said, pointing to a common mistake by investors who don't understand that such funds are designed to be one-stop-shopping investments.

Schwab's findings indicated that the differences in returns among those who seek advice and those who don't are most pronounced among younger plan participants. Often new investors don't set enough aside or invest too conservatively.

But just as important as setting the right course, analysts say, is sticking with a long-term investment strategy through short-term ups and downs.

"The two most important things are the expertise in building long-term asset allocation and also the discipline of maintaining that course," said Peng Chen, president of Ibbotson Associates, a division of Morningstar Inc. that provides financial advice for 401(k) investors.

Schwab's McCool noted that despite all the educational tools to help investors learn about investing, many don't take advantage of them and would rather be able to ask for help only when they need it.

"Ultimately, at the end of the day, investing money is an emotional decision and they need help," he said.