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Teaching asset allocation helps

By Sheyna Steiner · Bankrate.com
Friday, May 20, 2011
Posted: 1 pm ET

The average 401(k) balance rose in the first quarter of this year, according to a recent study by Fidelity Investments. Fidelity, a provider of workplace retirement plans among other things, found that the average balance in its managed workplace retirement plans is up to $74,900 as of the end of April.

According to the study, employee education can drastically improve account balances. Not only does enrollment increase in addition to an increase in deferral rates, but age-based asset allocation was also significantly likely to improve, at 85 percent to 51 percent.

The study looked at plans before and after they adopted Fidelity’s employee education programs. After receiving education, many more accounts reflected asset allocation more in line with model portfolios that Fidelity would recommend for particular ages.

The mutual fund and brokerage company's employee education programs launched in 2009 and have been adopted by 92 percent of plan sponsors, Boston.com reported May 11 in "Fidelity: Average 401(k) balance hits all-time high."

While choosing good investments is important, studies have shown that the choices of asset classes are even more important. If a 401(k) is your first and only foray into investments, that’s likely information you haven’t run into before.

Diversifying across several different asset classes can reduce the risk of one particular industry or group of businesses getting clobbered and destroying your returns for a period of time.

Investing for retirement is an important undertaking for everyone and it’s heartening to see that with a little bit of direction, workers can take proactive steps to making their retirement better by investing smarter along the way.

Bankrate has an asset allocation calculator that lets you dial in your specific situation and find out how your portfolio should -- or could -- be allocated to reduce risk and increase returns.

Are you happy with how you’re investing for retirement, or do you think you could use some help?

Does the plan offered by your employer provide any education on investing?

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