KEVIN O'FEE, a Fidelity Investments vice president, sees the need for a risk-sensitive, consistent retirement investment strategy to deal with the ups and downs of the equity markets.
COURTESY FIDELITY INVESTMENTS
By Michael Souza PBN Contributing Writer
Kevin O’Fee is vice president for defined contribution product management at Fidelity Investments in Smithfield. His 30-year professional career has been in the financial services industry with a primary focus on retirement.
PBN: A recent news report stated that the increase in 401(k) balances in aggregate was largely due to the market. Fidelity on the other hand has stressed greater employee and company match contributions. Which is more responsible?
O’FEE: In the third quarter, 78 percent of the average balance increase was due to market action and 22 percent was due to participant action. For the 12 months ending the quarter, the ratio was 74 percent market and 26 percent participant.
PBN: Why did this happen during the third quarter of 2012?
O’FEE: It’s important not to ascribe too much to such a short time period, particularly when it comes to the long-term perspective required of saving and investing for retirement. That said, at the end of the third quarter, of Fidelity’s 401(k) participants, the average percent of contributions into equities was 71 percent. During the same period, the S&P 500 gained around 6 percent. Clearly, both factors contributed to the increase in 401(k) balances.
PBN: What economic statement can you extrapolate from the results?
O’FEE: In spite of economic uncertainty, investors still see value in diversifying across asset classes. In addition, historically low interest rates are causing investors to seek better returns beyond what’s available in today’s fixed income markets. The key is having an asset allocation and savings strategy based on an individual’s unique needs and risk tolerance that leads to the right mix of stocks, bonds and cash.
PBN: Why did new contributions into equities decrease?
O’FEE: Notwithstanding the need to diversify, investors are still concerned over the economy and wary of the volatility we’ve seen in the equity markets. That’s why it’s critical to establish a plan that can help quantify an individual’s risk tolerance. This can lead to an asset allocation strategy that, combined with periodic rebalancing, can help take the emotion out of saving and investing for the long term.
PBN: Will the rising 401(k) trend increase, level or drop, and why?
O’FEE: Individuals have more responsibility than ever before because 401(k) savings rates must increase, given the changing dynamics of retirement. For example, prior generations didn’t have to address the risk of outliving their money to the extent we do today. That’s why it’s impossible to overstate the importance of developing a well-thought out savings and investment plan based on an individual’s unique circumstances. Not doing so means you’re relying on hope, and hope is not a strategy.