According to research, most self-directed retirement savers simply aren't protecting their hard-earned money properly. Investors who hire a financial advisor have even saved almost twice as much for their retirement as investors who do not. This is why.
Schwab Research demonstrates the power of financial advice
Using data from its Preferred Choice Retirement Accounts (PCRAs), a self-directed brokerage account offered within defined contribution retirement plans, Charles Schwab found that plan participants who work with financial advisors had an average balance for the first quarter of 2022 of $535,354 – almost twice as much as the $286,008 from non-advised participants.
Broken down by age group, Schwab analysts found that, perhaps unsurprisingly, baby boomers (ages 58 to 75) had the largest balances of all PCRAs, with an average of $520,616. Participants from Gen
Of the total PCRA participants, only 19.2% chose to work with a financial advisor, but of those, about half of the accounts advised were in the Gen X group. Baby Boomers held 32.5% of advised accounts and Millennials 14.9%.
Notably, working with a financial advisor meant more transactions than not last quarter, with an average of 19.7 transactions versus 12.3 for non-advised transactions. Additionally, the advised participants had a more diverse asset allocation and a lower concentration of individual stocks.
A financial advisor can help you save for retirement and select investments that meet your financial goals. Find a qualified advisor today.
How pension savers can benefit from this
Working with a financial advisor can help savers determine an appropriate strategy for their finances, relieving some of the stress that comes with working toward a big financial goal like retirement. Given an investor's risk tolerance, time horizon and other factors, not every investment strategy may prove to be suitable.
Schwab's data offers food for thought. First, the advised accounts diversified their investments, putting no more than 4.05% into an exchange-traded fund (ETF). Although advised participants owned similar stocks to the non-advised stocks – Apple shares came in strong first for both groups – the percentage was slightly lower: 9.37% of advised shares in Apple versus 12.59% for the non-advised advised participants.
Advised participants also held a lower percentage of cash, 5.70% versus 15.71% for the unadvised participants. While this can protect assets from a plunge in market value, timing the market is difficult and holding a larger percentage of funds in cash can reduce the long-term profit potential of an investor's portfolio. At the same time, advisors appeared to favor a mutual fund allocation of 17.57%, while non-advised participants held 20.10% in mutual funds. According to the data, advised participants appeared to increase their fixed income assets from the fourth quarter of 2021 onwards.
