It is sad to see how little 401(k) participants have in their accounts compared to what they need. This article, The Average 401k Balance By Age (PersonalCapital.com), discusses the shortfall and what should be done to bridge the gap. The one thing should be added to the list of recommendations is investors must be in investment programs in which they will stay invested during the worst times.
The problem with target date funds and static balanced funds, often used as Qualified Default Investment Alternatives (QDIAs), is that participants can’t emotionally handle the negative returns during bear (equity) markets. When we get into bear equity AND fixed income markets in the future, we will see many participants go to cash and not get back in the markets for a long time.
Sponsors need to provide more tactical solutions that match the temperament of their participants. In other words, allow them to participate somewhat on the upside and significantly protect them on the downside.
Dynamic ETF strategies such as iSectors® Post MPT Growth and Moderate Allocations should be available to all 401(k) participants.