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Today I want to focus on what your employees can do to improve their investment outcomes.
I have to say upfront, there’s no guarantee when it comes to investing, but there are things employees can do to enhance or improve their potential outcome.One of them is something called automatic rebalancing. This is a feature that just about every record-keeping platform can provide for you. Automatic rebalancing allows your employees investment options to be automatically rebalanced over long periods of time.Let me give you an example: I pulled
a chart from page 98 of my book “Paychecks for Life: How to Turn Your 401(k) Into a Paycheck Manufacturing Company,” and the data from this chart comes from my dear friend Professor Craig Israelsen— the author of
“7Twelve Portfolio.”What did Craig and his students uncover in this analysis? They went back over a 40-year period, and they compared investments in a portfolio that has seven different asset classes: large-cap stocks, mid-caps, small-caps, international equities, bonds, cash, commodities, and real estate.They asked themselves, “What would happen if you invested over a 10, 20, 30, or 40-year period. Investors who just held onto those investments and did not equally rebalance their investment options, as opposed to investors who had the same investments and annually rebalanced their investment options to maintain their one-seventh investment in each asset class?”
Related: Don't Get Sued Because You Don't Know Your Revenue Sharing Fees Let’s look at the results: over a 10-year period of time, the results were still beneficial. From the period between the years 2000 to 2009, during which we had the technology bubble (and the market dropped almost 48%), if they had just held onto those investments, they would have had a 405% gain, which is nothing to be ashamed of.But somebody who took the time to rebalance their account once a year, every year, for 40 years, would have seen a gain of 532%. That’s an outperformance of almost 127%, or a 31.4% rebalancing advantage.But here’s the problem: human nature. Employees simply won’t remember to rebalance their investment accounts. The beauty of automating the annual rebalancing is that all an employee has to do is go online to your record-keeping platform, request that they want their accounts rebalanced monthly, bi-annually or as many times a year as they’d like, and it will be done for them.These are huge incremental successes that your employees can have, but the question is whether you’re communicating this information to them.
