After beginning the year at record highs, global events caused market volatility and stocks to plunge. The S&P 500 is seeing its first major correction since 2020, so investors are understandably looking to protect their assets. Investment firm Charles Schwab says increased diversification is the key to weathering such an investment climate. However, according to recent research, most self-directed retirement savers don’t protect their hard-earned money in the right ways. In fact, the investors who participate a financial consultant They saved nearly twice as much for retirement as those who didn’t. Here’s why.
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Schwab Research demonstrates the power of financial advice
Taking data from Preferred Retirement Accounts (PCRAs), a Self brokerage account offered indoors Defined contribution retirement plansCharles Schwab found that, in the first quarter of 2022, plan participants who work with financial advisors had an average balance of $535,354 — nearly double the $286,008 held by non-adviser participants.
Breaking down by age group, Schwab analysts found that perhaps unsurprisingly, Baby Boomers (ages 58 to 75) had the largest balances of all PCRAs, averaging $520,616. Generation X participants, ages 42 to 57, earned an average of $299,520, while Millennials, ages 30 to 41, earned $102,113.
Of all PCRA participants, only 19.2% chose to work with a financial advisor, but of those, nearly half of the reported accounts belonged to the Gen X group. Baby Boomers accounted for 32.5% of the reported accounts while Millennials accounted for 14.9%.
Notably, working with a financial advisor meant more deals last quarter than that, with an average of 19.7 deals versus 12.3 for a non-recommended one. Moreover, the notified participants had a more diversified asset allocation and a lower concentration of individual stocks.
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How retirement savers can benefit
Working with a financial advisor can help savers determine an appropriate strategy for their money, relieving some of the stress associated with working toward a big financial goal like retirement. given to the investor Take riskstime horizon and other factors, not every investment strategy may be appropriate.
Schwab’s data provides some food for thought. First, the nominated accounts have diversified their holdings, putting no more than 4.05% in any one exchange-traded fund (ETF). Hold though similar participants are advised Stock To the unrecommended — Apple stock came first in both groups — the ratio was slightly lower, at 9.37% of Apple’s equity assets versus 12.59% for the unrecommended.
Participants were advised to hold well Less cash percentage, 5.70% versus 15.71% for the unadvised. While this may protect assets from a plunge in market value, market timing is difficult and keeping a larger percentage of funds in cash can reduce the long-term profitability of an investor’s portfolio. At the same time, advisors appear to favor a mutual fund by 17.57%. Asset distributionWhereas, non-mentored participants own 20.10% in the mutual funds. According to the data, it appears that the notified respondents increased their fixed income assets from the fourth quarter of 2021.
Recent data from Charles Schwab indicates that retirement plan participants who work with a financial advisor can nearly double the amount they save for retirement. Financial advisors seem to favor a more rigorous diversification strategy, which reduces exposure to individual assets and thus reduces risk in this volatile market. While unadvised participants seemed to choose similar stocks and funds for their investments, guided financial advice may have improved portfolio results.
Tips for building wealth
Not sure which combination of asset allocation and strategies will help you achieve your long-term goals? To get a solid financial plan, consider speaking with a qualified financial advisor. Free SmartAsset tool It matches you with up to three financial advisors serving your area, and you can interview your own advisors at no cost to determine which one is right for you. If you are ready to find a counselor who can help you achieve your financial goals, let’s start.
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