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Investing is a sticky wicket in 401(k)s

By Sheyna Steiner ·
Thursday, August 21, 2014
Posted: 4 pm ET

Workplace retirement plans such as 401(k)s are fantastic vehicles for the well-heeled, the frugal, investment professionals and those with the time and energy to think about investing. For everyone else, they can be a bit of a puzzle.

© iofoto/

This guy would save in a 401(k) plan.

In fact the main factor that keeps 401(k)s from being super effective is a lack of employee understanding, according to Deloitte's Annual Defined Contribution Benchmarking Survey. On average about 77 percent of employees offered a 401(k) actually contributed money in 2013, up 6 percentage points from 2012.

In the survey most plan sponsors, 30 percent, guessed that the main barrier keeping employees from saving for retirement is lack of awareness or understanding. Fourteen percent of plan sponsors said that uncertainty about the economy prevented workplace plans from being as effective as they could be.

Over half of the respondents, 55 percent, said that employees didn't know which funds to invest in, while 35 percent said that they weren't sure how much to save for retirement.

Too much choice

Investor confusion is a big problem, according to Certified Financial Planner professional Peter Lazaroff, CFA, portfolio manager at Acropolis Investment Management in St. Louis, Missouri. One source of that confusion can be an overwhelming number of options.

"They get paralyzed by the amount of choices and decisions they have to make. Doing something is better than nothing, for sure," Lazaroff says.

For instance, at the beginning, dumping all  contributions into a target date mutual fund is a great place to start.

"But get educated as you go along. When you get to $5,000 or $10,000 or $15,000, you want to make sure your risk tolerance matches your goals," says Robert Laura, president of Synergos Financial Group in Brighton, Michigan.

"If you're just starting work out of college, you don't want to be in a target-date fund that is mostly bonds. Be aware of what you're in and what you're trying to do," he says.

With a little bit of rummaging around the Internet, most retirement savers should be able to learn how to invest for success in a 401(k) plan.

Does your 401(k) plan have too many options or not enough?

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Senior investing reporter Sheyna Steiner is a co-author of "Future Millionaires' Guidebook," an e-book written by Bankrate editors and reporters. It's available at all the major e-book retailers.

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