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Investors May Not Be as Diversified as They Think |
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Submitted by Janeane Carnagie
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When more than 1 million college graduates entered the work force last fall, they began the first of what could be seven job moves during a 40-year working career, according to the Bureau of Labor Statistics1.
In fact, according to a recent study by Fidelity Investments, one-third of today's new work force could be compiling a series of stand-alone retirement savings accounts, which may not be as diversified as they think2.
With each job change, millions are faced with the increasingly challenging task of managing their workplace retirement savings accounts.
"As American workers continue to change jobs, our survey tells us that approximately 32 million have left behind retirement accounts with past employers," said Jeffrey R. Carney, president of Fidelity Personal Investments.
"Our research also shows that 41 percent of investors with multiple retirement accounts believe that maintaining separate accounts makes for a more diversified portfolio. While Americans are more savvy about investing, many have lost sight of what 'diversification' really means -; spreading out money over different types of investments such as stocks, bonds and cash to manage risk -; which can't be assured simply by having multiple accounts."
In reviewing the portfolios of nearly half a million investors over the past year, Fidelity found that many need to be reminded of three basic tenets for managing a diversified portfolio: Know what you own; know how much you're paying; and know when it's time to seek guidance.
Many investors who maintain multiple accounts don't realize the makeup of their overall investments and may be heavily overweighted or underweighted in a specific type of investment sector or security.
Keeping accounts scattered not only creates additional paperwork, it can cost more when maintenance fees are assessed by multiple providers.
"Many investors are surprised to find that they are holding a variety of mutual funds with above-average expenses or paying more in fees by maintaining several smaller balance accounts," Carney said.
Managing and monitoring multiple accounts through numerous statements and Web sites can add increased layers of complexity for investors. In fact, nearly a quarter of those with multiple accounts reported trouble keeping track of them.
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