Schwab’s secret to doubling your retirement savings

After starting the year at record highs, global events led to increased market volatility and lower equities. The S&P 500 is facing its first major correction of 2020, so investors are looking to protect their assets. Investment firm Charles Schwab says increased diversification is key to weathering such an investment climate. However, according to recent research, most self-directed retirement savers are simply not protecting their hard-earned funds properly. In fact, investors who hire a financial advisor saved nearly twice as much for retirement as those who did not. Here’s why.

A financial advisor can help you save for retirement and select investments that match your financial goals. Find a qualified advisor today.

Schwab research demonstrates the power of financial advice

Taking data from its Preferred Choice Retirement Accounts (PCRAs), a stand-alone brokerage account offered under defined contribution retirement plans, Charles Schwab found that for the first quarter of 2022, plan participants who work with financial advisors have had an average balance of $535,354 – nearly twice the $286,008 held by non-advised participants.

Broken down by age group, Schwab analysts found that, perhaps unsurprisingly, Baby Boomers (ages 58 to 75) held the highest balances of all PCRAs, averaging $520,616. Gen Xers, ages 42 to 57, had an average of $299,520, and Millennials, ages 30 to 41, had $102,113.

Of all PCRA participants, only 19.2% chose to work with a financial advisor, but of those, about half of the accounts consulted belonged to the Gen X group. Baby Boomers held 32.5% of the accounts consulted, and Millennials held 14.9 %.

In particular, working with a financial advisor meant more trades in the last quarter than not, averaging 19.7 trades versus 12.3 for those without advice. In addition, the advised participants had a more diverse asset allocation and a lower concentration of individual stocks.

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How can I take advantage of my pension savings?

Working with a financial advisor can help savers identify a strategy that’s right for their finances, taking some of the stress out of 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 appropriate.

Schwab’s data provides food for thought. First, the advised accounts diversified their holdings by not placing more than 4.05% in any exchange-traded fund (ETF). Although advised participants held similar shares to non-advised ones – with Apple stock leading strongly for both groups – the percentage was slightly lower, 9.37% of recommended stock assets in Apple versus 12.59% for non-advised ones.

The story continues

Advised participants also hold a smaller percentage in cash, 5.70% versus 15.71% for non-advised. While this can protect assets from a decline in market value, market timing is difficult and holding a higher percentage of funds in cash could reduce the long-term earning potential of an investor’s portfolio. At the same time, advisors appeared to favor a mutual fund asset allocation of 17.57%, while non-advised participants held 20.10% in mutual funds. According to the data, advised participants appear to increase fixed income assets from Q4 2021.

Consider speaking with a financial advisor to build a retirement plan that targets your personal goals.

Conclusion

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 seemed to favor a more consistent diversification strategy, reducing exposure to individual assets and thereby reducing risk in this volatile market. While unadvised participants appeared to choose similar stocks and funds for their investments, targeted financial advice may have led to improved portfolio results.

Wealth Building Tips

• Not sure what asset allocation mix and strategies will help you meet your long-term goals? For a solid financial plan, consider talking to a qualified financial advisor. The free SmartAsset tool matches you with up to three financial advisors serving your area, and you can interview advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your goals financial, start now.

• Use SmartAsset’s free investment calculator to get a good estimate of how your money will grow over time.

• Keep an emergency fund handy in case you face unexpected expenses. An emergency fund should be liquid — in an account that isn’t exposed to significant fluctuations, such as the stock market. The trade-off is that the value of liquid cash can be eroded by inflation. But a high interest account allows you to earn compound interest. Compare savings accounts from these banks.

• Are you a financial advisor looking to grow your business? SmartAsset AMP helps advisors connect with prospects and provides marketing automation solutions so you can spend more time converting. Learn more about SmartAsset AMP.

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