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Studies have shown that more than 90% of all drivers rate themselves as above average. That is not surprising since every one of us who has children knows that our kids are above average.  This is America and we all like to be winners. However, when it comes to managing our 401k accounts, most of us end up being losers.

Many studies have shown that the average 401k participant earns at least 2% to 3% less each year than the mutual funds in their plans. How can this be? Because so many of us give in to our emotions and chase markets higher, buying at tops. Then we get scared and sell when markets fall.

What can plan sponsors do to help participants? Vanguard recently published data from a study by Morningstar indicating that those participants who invest in target date funds consistently earn more than the average plan returns and beat the market. Reasons for this outperformance include:

How Participants Can Beat The Market

Disciplined process

Target date fund participants are relieved of having to think of when to time their purchases or sales. Participants attempting to market time to beat the market are nearly always unsuccessful.

It’s automatic

Professional management eliminates the need for participants to re-balance their accounts or modify their allocations as they age. Age appropriate allocations yield market experience more in alignment with ability to bear risk.

Elimination of emotion

Professional managers buy and sell securities based upon their investment appeal rather than their emotional appeal.

Always diversified

Participant account balances are always well diversified, dampening the effects of volatile market fluctuations.

A number of retirement plan experts believe that as many as 75% of all plan participants belong in target date funds. Although they may not be the perfect investment vehicles for everyone, target date funds appear to offer participants the opportunity to beat the market.

Consider including an educational element about target date funds and how they beat the market in your next employee education session.


About the Author

Robert C. Lawton, AIF, CRPS is the founder and President of Lawton Retirement Plan Consultants, LLC. Mr. Lawton has over 30 years of retirement plan consulting and administration experience and has provided consulting services to many Fortune 500 companies including: Aon Hewitt, Apple Inc., AT&T, First Interstate Bank, Florida Power & Light, General Dynamics, Houghton Mifflin Harcourt, IBM, John Deere, Mazda Motor Car Company, Northwestern Mutual, Northern Trust Company, Trek Bikes, Tribune Company, Underwriters Labs and many others. Mr. Lawton may be contacted at (414) 828-4015 or

About Lawton Retirement Plan Consultants, LLC

Lawton Retirement Plan Consultants, LLC is a Milwaukee, Wisconsin-based independent, objective Registered Investment Advisory (RIA) firm providing investment advisory, fiduciary compliance, employee education, vendor management and plan design services to 401(k) plan sponsors. The firm currently has contracts in place to provide consulting services on more than $400 million in plan assets. For more information, please contact Robert C. Lawton at (414) 828-4015 or or visit the firm’s website at: Lawton Retirement Plan Consultants, LLC is a Wisconsin Registered Investment Adviser.

Important Disclosures

This information was developed as a general guide to educate plan sponsors and is not intended as authoritative guidance, tax, legal or investment advice. Each plan has unique requirements and you should consult your attorney or tax adviser for guidance on your specific situation. In no way does Lawton Retirement Plan Consultants, LLC assure that, by using the information provided, plan sponsor will be in compliance with ERISA regulations. Investors should carefully consider investment objectives, risks, charges and expenses. The statements in this publication are the opinions and beliefs of the commentator expressed when the commentary was made and are not intended to represent that person’s opinions and beliefs at any other time. The commentary does not necessarily reflect the opinion of Lawton Retirement Plan Consultants, LLC and should not be construed as recommendations or investment advice. Lawton Retirement Plan Consultants, LLC offers no tax, legal or accounting advice and any advice contained herein is not specific to any individual, entity or retirement plan, but rather general in nature and, therefore, should not be relied upon for specific investment situations. Lawton Retirement Plan Consultants, LLC is a Wisconsin Registered Investment Adviser and accepts clients outside of Wisconsin based upon applicable state registration regulations and the “de minimus” exception.