When it comes to 401(k) performance, you’d think employees might do better with the help of the so-called experts, right? Well, maybe not.
Here’s a disturbing study I ran across today coming from researchers at Michigan State University and the University of Notre Dame: Financial experts do not make higher returns on their own investments than untrained investors.
There’ve been more than a few surveys in recent years that suggest employees would like more help in managing their 401(k)s and preparing for retirement. So you’d think putting their nest eggs in the hands of “the experts”—or at least people they think are more expert than themselves—would give them some level of comfort. But if there’s any truth to the new study mentioned above, which looks at the private portfolios of mutual-fund managers, they’d be mistaken. Among other things, the study—titled “Do Financial Experts Make Better Financial Decisions”—found the experts were “surprisingly unsuccessful” at outperforming nonprofessional investors. (The study is slated to be published in an upcoming edition of the Journal of Financial Intermediation.)
To reach their conclusion, the researchers—Andrei Simonov, associate professor of finance at Michigan State University, and Andriy Bodnaruk, assistant professor of finance at the University of Notre Dame—compared the portfolios of 84 mutual-fund managers in Sweden against the portfolios of untrained investors and found “no evidence that financial experts make better investment decisions than peers.”
Simonov says he’s not denying there aren’t talented fund managers out there, but does suggest that there are “very, very few of these superstars, and the average investor probably can’t afford to invest with them anyway.”
(Though the study took place in Sweden, Simonov and Bodnaruk believe the findings are just as applicable to the United States and other countries.)
Whether you’re an investor or a fiduciary, the notion that these experts aren’t performing any better than the average nonprofessional investor probably isn’t going to help you sleep any better at night. Most of us would like to think the opposite was the case, especially in an environment in which employees seem to be more stressed than ever about their financial well-being.
Employees certainly don’t need yet another thing to be frightened by. Oh BTW, Happy Halloween!