May the 4th Be With You

In honor of the greatest movie franchise of all time, my favorite movie ever, some of the best characters to grace the silver screen, the best quotable lines, the first love of my life (Princess Leia) and of course today’s date, I give you this blog post…

“Fear is the path to the dark side.” – Yoda

If there has been one piece of free advice that has been universally agreed upon over the years and especially the past 60+ days, it has been to NOT change your 401(k) during times of market volatility. You’ve heard the message, "buy and hold," "long term investing," "dollar cost averaging" or as Gold Five once said, “stay on target.”  The words may be different, but the recommendation is the same.  The good news is that most 401(k) participants are following that advice. 

Average 401(k) participant contributions and employer contributions have remained steady from Q4, 2019 to Q1, 2020.  Data has also shown that changes to allocations and actual balance transfers have only increased minimally.  That said, the 1.60% increase for Q1, 2020 reported by Alight Solutions 401(k) Index is more than three times the average quarterly net trading activity for the past five years (0.50%) and the highest for a quarter since Q3, 2008.

At Unified Trust, we saw a 10-12x increase in participant calls requesting an investment/portfolio allocation change in March, compared to the previous five months.  While that ‘sounds’ significant, our typical allocation change call count is extremely low.  The March increase was still less than 0.5% of all participants with a balance across the entire book.  In other words, during one of the most volatile months in market, only less than half of one percent of all participants with a balance called in to make an investment or portfolio allocation change.

The goal is to stay the course.  However, the ‘no change during volatility’ rule isn’t a hard line drawn in the sand of Tatooine. There could be hundreds of reasons for making a change to your 401(k) like moving more money into equities.  The key factor is to have a plan and do your best to, “stay on target.”  

“Difficult to see.  Always in motion is the future.” – Yoda

A quick Google search and you can find everything you ever (or never) wanted to know about the future of the stock market (i.e. “8 MONSTER Stock Market Predictions,” “Stock Market – Forecast 2020-2022,” “Experts predict…,” “Should you buy stocks now or wait?”). If it were easy to see into the future, would anyone be in the market right now?  Of course not.  Yet, we don’t have a crystal ball and we can’t use jedi mind tricks to stop someone from making an unfavorable decision.  This is why we must ‘stay on target’ and stick with the plan. 

Did you know that if you missed the 10 best days in the S&P 500 over the past 10-years you missed 50% of the return? To put that in dollars, by missing the 10 best days a $1,000 investment would have grown to $1900; but it could have been $2900 if you had stayed in the market.  If only we knew when those 10 days will occur going forward.

A popular option within retirement investing are target date funds.  They allow someone to buy and hold and to invest with a specific retirement date as the guiding light.  Since their introduction almost 30-years ago they have gained in popularity.  Target date funds have passed $1 trillion and almost 60% of new contributions flowed into Target Date funds in 2019.  One of the concerns with target date funds, however, is that they are too simplistic.  They focus solely on one data point, a retirement date but there are so many more things to consider. 

“Always pass on what you have learned.” – Yoda

The concept of a target date fund is a good one as it’s important to understand an individual’s time horizon, but let’s build on that.  What if you could take someone’s projected retirement date and then include their salary, their contribution rate, their projected annual retirement income need, their estimated social security income, mortality tables, risk tolerance and more.  Then create a glidepath custom to that individual for a more accurate assessment during one’s working years.  Let’s also include the ability to manage volatility, especially for those nearing retirement.  

Does this exist in the universe? It does, it’s called the UnifiedPlan.  The UnifiedPlan is a highly personalized plan that helps participants achieve retirement success taking the least amount of risk possible to achieve their goal.  It also manages market volatility effectively, with first quarter 2020 being the best relative performance in the programs 10-year history. 

“In my experience there is no such thing as luck.” – Obi-Wan Kenobi. 

Would you rather be lucky when it comes to retirement or have planned for it?  That’s what the UnifiedPlan does.  It’s engineered to help participants achieve a successful retirement regardless of market climate.  By reinforcing their long-term retirement goal, not the short-term gain or loss, it keeps participants from making fear-based investment decisions.

“Help me, Obi-Wan Kenobi.  You’re my only hope.” – Leia Organa

Okay, maybe not the “only hope” but we are a great option. Approximately 65% of participants who take advantage of the UnifiedPlan managed account solution are projected on track to retire, as compared to the national average below 25%.  When one considers our managed account option, which focuses on a long-term investing, our performance in the down market, our participant activity (or lack of) during one of the most trying times in our market’s history and the fact we are a discretionary trustee on all our retirement plans, you realize we are not like everyone else.  We are different, very different in a really good way.  We focus on participant outcomes and getting working American’s to retirement.  Isn’t that the purpose of a retirement account?

Obi-Wan Kenobi said, “The Force will be with you.  Always.” So will Unified Trust!

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