The longest bull market in our country's history came to an abrupt end after the World Health Organization declared the coronavirus outbreak a global pandemic following several quarters of economic slowdown. Like many market downturns, this one was fast and accompanied by a sharp increase in volatility, leaving many investors to wonder what, if anything, they can do with their accounts, or if perhaps if it is already too late.
This type of second-guessing can be avoided by using a managed account service that delivers personalized advice. More critically, participating in a managed account service can help avoid some of the more costly mistakes some retirement plan participants may make in periods of uncertainty accompanied by high volatility.
The key to long-term success in a retirement plan is creating and implementing a prudent investment strategy that considers the key factors of an investor’s current situation and future retirement goals. An important component of any investment strategy is the creation of an efficient, diversified portfolio across a broad range of asset classes, a core feature of a managed account service. Although it is impossible to avoid market volatility, in turbulent markets broad diversification can help to lessen the impact of the extreme swings that can occur.
While diversification can help mitigate some market volatility, it is important that the asset allocation be appropriate for the investor’s situation, considering the key components of their financial situation and goals. A managed account program will consider a participant’s current age, desired (or suggested) retirement age, and income needed in retirement when developing and implementing a strategy.
These sequence-based factors can help manage risk by reducing exposure to market volatility in the years that a participant is most sensitive to risk, particularly at or near retirement. Other personal factors often factored into a managed account strategy are a person’s outside accounts or income in addition to lifestyle characteristics (health, education, salary risk, marital status). When all these important factors are considered, as they are within a managed account, the participant’s investment risk level tends to better reflect both their risk tolerance and risk capacity.
Possibly the most critical aspect of a managed account during periods of uncertainty is the disciplined approach that managed accounts apply to investing. Participating in a managed account will help remove emotion from a participant’s investment behavior, ensure that the account is rebalancing on a periodic basis, and continue a dollar-cost averaging approach. These are all disciplines that have shown to provide the greatest chance at long-term investment success.
Contact your Newport Representative for more information on our Managed Account Service.
Newport Group, Inc. and its affiliates provide recordkeeping, plan administration, trust and custody, consulting, fiduciary consulting, insurance and brokerage services. Investment Advisory and fiduciary consulting services are offered through Newport Group Consulting, LLC, a registered investment adviser and wholly owned subsidiary of Newport Group, Inc. For more information about Newport Group Consulting and its services, please visit newportgroup.com or refer to our Form ADV Part 2, which is available by contacting us at 407-333-2905, or visiting our website.
The Managed Account service is a web-enabled financial advisory service for retirement plan participants that uses technology supported by NextCapital Group, Inc. (“NextCapital”) and integrated with the retirement plan recordkeeping system. The service may be offered to participant accounts including employer-sponsored defined contribution accounts (401(k), 457, 403(b), and other participant directed plans). The service allows plan participants to develop a strategy to help them reach investing and retirement goals by offering a personalized plan for saving and investing, forecasts for retirement income and wealth, and the creation and management of model portfolios using the designated investment alternatives offered in the employer-sponsored defined contribution plan. Please refer to the Newport Group Consulting, LLC Managed Account ADV Part 2 for detailed information regarding the Managed Account service and associated fees. The ADV Part 2 is available at www.newportgroup.com and www.iard.com.
NextCapital licenses its technology to Newport Group, but does not serve as an investment adviser to Newport Group or its clients.
Newport Group and NextCapital are not affiliated companies.