Conservative moves hurt near-retirees

Recent data suggests 401(k) investors are reacting to stock market declines by plowing money into conservative investments such as stable-value funds.

But a new study shows for those nearing retirement, there's a big price to be paid for abandoning a diversified portfolio of stocks and bonds, according to the Wall Street Journal.

The paper reports on findings from Hewitt Associates, an HR outsourcing and TPA firm.

"These investors put the vast majority of the proceeds -- some 85 percent -- into conservative investments, 'mainly stable value funds,'which are designed to preserve capital and generate smooth, positive returns," Pamela Hess, Hewitt's director of retirement research, told the paper.

"The transfers, which have continued this year at a lower level, have helped reduce the average equity exposure in 401(k) plans to about 53 percent in June, down from 67percent at the end of 2007, according to Hewitt.

But those 'who impulsively transfer assets to more conservative funds during market slumps may hurt their ability to save enough for retirement," Ms. Hess says. Hewitt has found that most investors who flee equities "are unlikely to reallocate their investments [to stocks] when the market rebounds,'" she adds.

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