I had a client send me an analysis of her 401(k) plan from a system called Financial Engines. This is a software program that Fidelity uses with their 401(k) plans to help participants determine if they are taking the right amount of risk.
My client is one year away from retiring. She plugged the information into the system. The analysis was as follows:
How are you doing? – Your Investment Risk
Your risk level is appropriate for an investor with one year until retirement.
How we can help?
Not sure how to maintain a degree of investment risk that makes sense for you? We can help. See details on the following pages.
Then on the following page they give her a brand new portfolio that they recommend she use. They compare the current allocation to a suggested allocation. Now keep in mind, I allocated this for her a while back and she only has 15% of the entire portfolio in stocks.
The suggested allocation increases her stock exposure from 15% to 76%!! YIKES!!!! No one that is one year from retirement should have that high of an exposure to risk. It is quite unbelievable. The reality is that these software programs are out of touch with what is occurring today. They are programmed as if we are always in a bull market.
The unfortunate thing is that people are using this service and taking the recommendations. You never want to get any advice from a software system. Risk should be assessed for you by someone that knows what they are doing. Incidentally, that would not include salespeople.
Tags: 401(k), Bob Brooks, bull market, Deceptive Money, Fidelity, Financial Engines, investment risk, investor, portfolio, Prudent Money
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