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How to retire with twice as much money

US 100 dollar bills, on texture, with 401(k) lettering CBS/AP

Warren Buffett often quips that investing successfully is like losing weight: simple, but not easy. That fact was reaffirmed by a recent study that contrasted the performance of 401(k) investors who receive investment help with those who invest in their retirement plans on their own.

The study, which was conducted by human resources consultant Aon Hewitt and investment advisor Financial Engines, examined the annual returns earned by 425,000 participants in eight large defined contribution plans between 2006 and 2010.

The participants were grouped into two categories: Those who received professional investment help (defined as either using target date funds, using managed accounts, or receiving online advice); and those who did not.

The result? Those who received help earned returns that outpaced the non-help investors by nearly three percentage points a year. To put that spread into perspective, growing at five percent annually, $10,000 would be worth about $43,000 after thirty years; growing at eight percent, it would be worth nearly $101,000.

So what kind of help did these investors receive that allowed them to earn such superior returns? If you're thinking that it was hot fund tips or market timing advice, think again. The help that was so successful was about as basic and fundamental as you can get, such as:

  • Balance your need, willingness, and ability to stomach investment risk. The non-help investors tended to either take on too much risk -- in the form of outsized allocations to stocks, particularly as they drew close to retirement -- or too little, with higher-than-appropriate allocations to fixed income investments. The investors who received help were guided to an asset allocation that was suitable for their risk tolerance.

  • Diversify broadly. Company stock is, hands down, the most lethal investment option in most 401(k) plans, with the potential to scuttle the most well-laid retirement plans. Despite that, it remains a wildly popular choice among many defined contribution plan participants, as indicated by the fact that 47 percent of the non-help participants in this study had an allocation of 20 percent or more to company stock. The participants who received help, on the other hand, were guided to well-diversified portfolios. The result? The assisted investors earned risk-adjusted returns that outpaced the non-help participants 87 percent of the time.

  • Hang in there. I've mentioned before that perhaps the biggest service an advisor can provide is to simply prevent their clients from acting on their emotions, which was confirmed by this study. The bear market of 2008 caused many of the non-help participants to bail out of stocks in favor of more conservative investments, which caused them to miss out on the market's rebound in 2009. Those receiving help, on the other hand, were much more likely to keep rebalancing back to their target allocation during the bear market, which paid off nicely when the market snapped back.

So there you have it: the basic components of a solid long-term investment strategy that has demonstrated an ability to earn superior long-term returns with lower risk, accomplished without the "benefit" of so much of the complexity -- alternative asset classes, sector rotation strategies, macro-economic analysis -- that Wall Street loves to ladle on.

Yes, successful investing is simple, but not easy. But it sure beats the heck out of unsuccessful investing, which is neither simple, easy, or, well, successful.

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