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Americans saving in a 401(k) plan may have money stashed in a robo-advisor — and they might not even know it.
Robo-advice is basically professional money management guided by an algorithm (a robot, so to speak), largely allowing investors to be hands-off.
Companies offering a retirement benefit are increasingly enrolling employees into 401(k) plans automatically. Most are diverted to some type of robo-advisor.
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About 60% of 401(k) plans used auto-enrollment in 2019, up from 42% a decade earlier, according to the Plan Sponsor Council of America. Doing so helps overcome inertia that may prevent a person from saving.
“You get the momentum going,” Keith Gredys, chairman and CEO of The Kidder Company in Clive, Iowa, who works with 401(k) plans and investors, said of automatic enrollment. “[Employees] go in and tend not to come out.”
About 66% of 401(k) plans guide those automatic savings into target-date funds, according to the Council, a trade group representing businesses that offer retirement plans.
TDFs are perhaps the simplest version of a robo-advisor — they automatically toggle savings from aggressive (lots of stocks) to conservative (lots of cash and bonds) according to an investor’s planned age…