Puerto Rico - INSIDER highlights
Of particular interest this month is the article entitled "Defined
Benefit vs. 401(k) Returns: The Surprising Results" found here.
Earlier studies for years from 1990 to 1995 had shown that the average
return realized by 401(k) participants in their employee-directed investments
was less than that earned by defined benefit plans. This indicated that
401(k) participants might not have sufficient investment expertise to
take advantage of the investment options being offered, thereby yielding
less retirement income.
Watson Wyatt's most recent study, encompassing the years 1990 to 1998,
shows that the difference between returns realized by 401(k) participants
in their self-directed accounts are now comparable, on average, with those
returns realized by defined benefit pension plans.
In part this may be due to better education and communication of investment
options by 401(k) plan sponsors and/or more aggressive investment strategies
of 401(k) participants who also enjoy guaranteed retirement income through
an employer-sponsored defined benefit plan. It may also be attributable
to the remarkable run-up in the S&P 500 Index in 1997 and 1998, which
may have tempted many participants to invest more of their account balances
in the stock market. If the 401(k) returns are simply the result of employees
"riding the "wave" of our previously booming market, then
- as the market declines or stabilizes - participants may need additional
education regarding the importance of maintaining a well-diversified portfolio
that is sensitive to their risk tolerance and investment horizon.
Sincerely,
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