Financial Engines for a 401K-What do you think?

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msj16
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Financial Engines for a 401K-What do you think?

Post by msj16 » Wed Nov 02, 2011 12:07 pm

Hello everyone,

Available to my dh's 401K is now financial engines. We are given two options: (1) online help for free or (2) professional management. I am really against the professional management piece, since once you sign up, the program automatically buys/sells/rebalances according to their computer model without your input. The customer rep said many people were "taken aback," once they signed up, not realizing that the plan would take effect immediately without their ongoing permission. The sales pitchy letter my dh got got did not make it clear how the program would work. The rep also said the professional help just puts into place what the free online help tells you to do.

Is the online help useful? Does anyone think that the professional help - costing about 1000 a year is valuable?

Your advice is appreciated.

msj

livesoft
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Re: Financial Engines for a 401K-What do you think?

Post by livesoft » Wed Nov 02, 2011 12:17 pm

Waste of money. Waste of time.
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Grt2bOutdoors
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Re: Financial Engines for a 401K-What do you think?

Post by Grt2bOutdoors » Wed Nov 02, 2011 12:26 pm

My 401k offers the same service. IMHO, I second Livesofts opinion. From my experience, I use it as a sounding board of "will I have enough?" only. If I were to run their analyzing my portfolio option for a period of two weeks, I find that Financial Engines is constantly (meaning each day) :o offering suggestions to either increase or decrease allocations, sometimes substantially so and dramatically increasing beta to achieve somewhat dubious returns and/or expected annual income returns. Investing 40% of my overall portfolio in Emerging Markets is waaaay too much risk for me.
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mhc
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Re: Financial Engines for a 401K-What do you think?

Post by mhc » Wed Nov 02, 2011 3:15 pm

Low cost, passive, diversified investing is too easy to need a tool like Financial Engine. You can easily do better than it on your own with just a little education and thinking. I don't mean this in a bad way, but if you want to just shut off your brain and following a computer algorithm, go for it.

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msj16
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Re: Financial Engines for a 401K-What do you think?

Post by msj16 » Wed Nov 02, 2011 3:53 pm

livesoft-Thanks for the brutal honesty. It is a good antithesis to all of the salesmanship.

grt2boutdoors -This sounds like paying a stockbroker who then has to show you a reason for their existence in the first place! Thank you for the feedback.

mhc: I am a hard core indexer but my dh (who has the 401k with this plan) is not as hard core as I am. I am curious to see of the slate of funds in his 401k (including index funds and active funds) - what financial engines would recommend. I don't know if they recommend specific holdings available to the 401k. If not, it is even more useless since one can get good financial calculators online with monti carlo analysis already.

dbr
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Re: Financial Engines for a 401K-What do you think?

Post by dbr » Wed Nov 02, 2011 7:27 pm

Do you know how FE is arriving at its recommendations? If not, do you really think you should blindly follow what is recommended?

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msj16
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Re: Financial Engines for a 401K-What do you think?

Post by msj16 » Wed Nov 02, 2011 8:11 pm

hi dbr: Well I do know that it was developed by Nobel prize winning economist Bill Sharpe in 1996 and that it uses Monti Carlo analysis taking in a range of factors, including likely investing returns, inflation etc... over many economic periods. I don't know much more than that. I also think that what used to be special when it was first founded may not be so special now, since one can get free calculators online that seem to use a similar analysis ( I could be wrong on that).

I would never blindly follow the recommendation - I am totally against the professional management part of it where you put your faith solely in them and they completely manage your 401K. I just wanted to see how good of a reputation it had in the investing community and learn more about which is why I am making this post.

I thought the online recommendations might be a little bit useful since they recommend specific funds already in the 401K, taking into account also what I already know about investing.

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mhc
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Re: Financial Engines for a 401K-What do you think?

Post by mhc » Wed Nov 02, 2011 10:39 pm

msj16 wrote:livesoft-Thanks for the brutal honesty. It is a good antithesis to all of the salesmanship.

grt2boutdoors -This sounds like paying a stockbroker who then has to show you a reason for their existence in the first place! Thank you for the feedback.

mhc: I am a hard core indexer but my dh (who has the 401k with this plan) is not as hard core as I am. I am curious to see of the slate of funds in his 401k (including index funds and active funds) - what financial engines would recommend. I don't know if they recommend specific holdings available to the 401k. If not, it is even more useless since one can get good financial calculators online with monti carlo analysis already.
MSJ16, when I have looked at FE in the past, you can put in the funds you want it to choose from. It will then give you specific fund recommendations with specific percentages. It is kind of fun to play with, but I would not go with its recommendations. It might give you some ideas.

I get it with my Vanguard account, so I play with it every so often. If it is free and you like playing with things like this, give it a try. I don't think it is a horrible tool. It's not out in the weeds totally, but you can probably do better with your experience and knowledge.

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msj16
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Re: Financial Engines for a 401K-What do you think?

Post by msj16 » Thu Nov 03, 2011 9:06 pm

mhc,

Thank you for the information. It was very helpful. I didn't realize that it came with the Vanguard account, and now I have tried it under my account at Vanguard. I do think it was a bit useful but made some odd choices: in the interests of more diversification, it recommended selling my target date retirement fund, and replacing it with the Vanguard 500 and an international fund. It did recommend a fairly high level of international exposure: 38%. I do agree that it was interesting to play around with. By changing one variable, my outlook went from a very cloudy day to sunny and extremely likely to have success!

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hand
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Re: Financial Engines for a 401K-What do you think?

Post by hand » Fri Nov 04, 2011 11:52 am

GRT2BOUTDOORS wrote:My 401k offers the same service. IMHO, I second Livesofts opinion. From my experience, I use it as a sounding board of "will I have enough?" only.
Hopefully you've recognized that the Financial Engines calculation of "How much income could you have in retirement" 1) includes social security and 2) appears to use a withdrawal rate of significantly greater than the the 4% most often considered safe (they use 6.4% by my calculation).

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mas
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Re: Financial Engines for a 401K-What do you think?

Post by mas » Fri Nov 04, 2011 12:02 pm

hand wrote:Hopefully you've recognized that the Financial Engines calculation of "How much income could you have in retirement" 1) includes social security and 2) appears to use a withdrawal rate of significantly greater than the the 4% most often considered safe (they use 6.4% by my calculation).
I have heard before that they internally model "retirement" by using all assets to purchase an annuity.

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Re: Financial Engines for a 401K-What do you think?

Post by bungalow10 » Fri Nov 04, 2011 12:12 pm

I've been using Financial Engines with my 401(k) and Roth accounts for years and have never had it recommend an expensive fund. It is tied in with my Hewitt account 401k and our two Roths at Fidelity.

1. It only recommends high-expense funds if you give it the option to and you don't have better funds available.
2. It only includes SSI and pension income if you configure it to do so.

I think it is a pretty cool too and it does a good job with asset allocation across our three accounts, taking into consideration the limited options we have with my 401k. I really don't see that it is that much out of line with Bogle as long as you set your risk level accordingly.
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