You may have the option of investing your 401(k) savings in a managed account or your employer may choose this qualified default investment alternative (QDIA) if you’re automatically enrolled in the plan. With a managed account, your 401(k) will be invested in a portfolio of various mutual funds or possibly individual securities that are chosen by a professional investment manager. The way the account is structured will depend on the plan provider your employer chooses.
Managed accounts are similar to actively managed mutual funds, as both have managers who follow a specific investment style—ranging from conservative to aggressive—and who select securities to meet a particular objective, such as long-term growth or income for retirement. Unlike a mutual fund manager, the account’s investment manager oversees many similar but not necessarily identical accounts simultaneously, and will typically make the same transaction for most or all of the accounts.
The managed account portfolios vary, as those of lifecycle funds do, so that there’s a greater emphasis on growth using stock or stock funds in the portfolios for younger employees. The portfolios for employees closer to retirement place a greater emphasis on fixed income investments, including bonds and bond funds.
Managed Account Portfolios
Many managed accounts have a single manager who follows a particular investment approach. Others have multiple managers with different investment styles. In that case, the assets are allocated among the various managers, similar to the way an overall portfolio is allocated among asset classes. One advantage of this approach is that if the total value of your 401(k) portfolio is still relatively small, you’ll still be broadly allocated and diversified.
But unlike individual mutual funds or lifestyle funds, with a managed account you may have some control over the exact mix of investments in your portfolio and when that mix is reallocated.
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