401k Investors – Why Many Investors Keep Fooling Themselves

Jason ZweigAs an investor, understanding what is possible and what is fantasy is very important to understand. One of the biggest fantasies we see in our 1on1 401(k) consultations is individuals that have a “return goal” for their account. Thus, they will chase returns throughout their plan, jumping from one fund(s) to another, often missing the largest returns of that fund.

Fantasy: I can achieve a higher return by moving around to funds that are producing higher returns.

Reality: The vast majority of investors that try to do this dramatically under-perform asset allocation (proper investment recipe) portfolios. People that jump to the best performing funds are typically investing in the fund(s) after those returns have taken place.

The faith in fancifully high returns isn’t just a harmless fairy tale. It leads many people to save too little, in hopes that the markets will bail them out. It leaves others to chase hot performance that can’t last. The end result of fairy-tale expectations, whether you invest for yourself or with the help of a financial adviser, will be a huge shortfall in wealth late in life, and more years working rather than putting your feet up in retirement. – Jason Zwieg

The Most Successful 401(k) Investors: They are not people that consider themselves “investors” and chase returns, but instead focus on being savers by consistently saving as much as they can afford. It’s simple. Focus on what you can control, which is your savings rate and managing risk, which you can do through dynamic asset allocation (or we will do for you).

Read the entire WSJ Article by Jason Zwieg