Nearly Half of 401(k) Investors Don’t Know What They’re Invested In — Why That’s Both Bad and Good

Middle aged woman working from home office.
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Almost half — 46% — of Americans don’t know what investments are in their 401(k), according to a new CNBC Your Money Survey, conducted by SurveyMonkey. But is this detrimental to their financial well-being?

According to CNBC, not knowing is not necessarily a bad thing, as many workplaces offering a 401(k) plan automatically enroll workers into it, selecting on how much money is contributed from each paycheck and how those funds are invested.

“The findings are not surprising because the truth is we are all so busy and focused on getting through our day with so much going on,” said Bobbi Rebell, CFP and founder of Financial Wellness Strategies.

“We aren’t supposed to be investment experts,” added Rebell. “That’s what the professionals are for, and that is why automatic investments are so important to help us reach our financial goals. We can always actively make a change, but the default is a great safety net for those who don’t.”

Rebell also agreed with the premise that not knowing exactly what it is in your 401(k) is not inherently bad for your finances.

“For most of us, we check the box and make sure we are investing and then set it and forget it,” she said. “Given that the other extreme might be constantly checking on our investments to the point where we obsess and possibly make emotionally driven investment decisions, it is better to be more hands-off.”

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It’s Still Important To Know Investment Fundamentals

While not knowing the intricacies of the fund is one thing, understanding its basics is important, as employees shouldn’t assume their employer’s auto-enrollment strategy will fit their needs, CNBC explained.

For instance, companies don’t always auto-enroll workers at an optimal savings rate, and it may also not be high enough to get their full 401(k) match. This leaves free money on the table, Sean Deviney, a certified financial planner, told CNBC.

Jeremy Bohne, founder of Paceline Wealth Management, said because many Americans are unaware of their 401(k) investments, this reality underscores the fact that 401k participants benefit greatly from the fiduciary role of the plan sponsor — and the professionals they employ to develop their company 401(k) plan.

“It’s well known that many employees don’t pay much attention to their 401(k) at their current company, let alone prior ones. So having default investment options that are reasonably appropriate for most employees, based on age in particular, is a good thing,” he said.

Bohne added that there is always the option for people to do something tailored to their own needs, but the reality is that most people don’t want that responsibility.

However, one issue with paying little attention to your 401(k), especially former employer plans, is that the company can move the plan to another custodian.

“Over time, the combination of HR staff turnover and outdated contact information can make tracking down a former employee, and their 401(k) assets challenging,” he said. “Although, any funds you contribute are always yours no matter what, not knowing where your money is located or struggling to find it are certainly unnerving to many savers.”

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