There Is No One-Size-Fits-All Approach to Investing

Scott Holsopple

Checking in on what your peers are doing is commonplace today. You have Facebook, Twitter, LinkedIn, and plenty of other social media sites to keep you up to date on what your friends, family, and acquaintances are doing, where they are going, and the latest articles they are reading. If you use Mint.com, you can even see how your peers are spending their money, and how you stack up against spending in other states.

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Using the information from peers is a great way to get ideas to help you with your own personal finance quest. You may find budgeting sites or helpful studies that can set you on a path to success. Possibly, because of the popularity of sharing and social media, more retirement plan providers are including peer data in their communication to boost participation and savings rates.

But does the knowledge of what your peers are doing with their finances hurt decision making, specifically when it comes to retirement saving?

Research from the National Bureau of Economic Research on the effects of peer intervention in retirement savings behavior between union and non-unionized groups indicates that knowing what your coworkers are doing doesn't always provide positive results. In this particular study, they conclude that while one group responded positively to knowledge about how peers were saving and increased savings rates slightly, another group had the opposite reaction and decreased their savings rates when presented with information about their peers.

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Does seeing how you compare to your peers make you want to change your retirement saving behaviors? Well, if it gets you thinking about your own situation—great! If it makes you take stock of your goals and your strategy to reach those goals—even better! If after all that thinking you take action and change behaviors to reach goals specific to you, then having information on your peers has provided a positive benefit to your planning efforts. However, if knowing what your coworkers are doing initiates copycat behavior, or even worse, a negative reaction, then it's not beneficial for you.

Making decisions about your financial well-being based off what everyone else is doing is not actively engaging in the retirement planning effort. While this follow-the-leader attitude is easy, there is no one-size-fits-all approach to investing. Just because your coworker is doing something, it does not mean that same thing will work for you.

Instead of falling into a trap that has you just doing what your peers are doing when it comes to retirement planning, break from the pack by evaluating your own needs. Start the process by deciding on your goals, and then build a plan around those goals. Use peer information as a gauge, but not as the plan. While the majority of your coworkers may have decided to set their contribution rate at the company match, your needs may vary greatly. Even though 6 percent of salary may be the most popular contribution rate for participants in your work place, 6 percent may not help you reach your goals.

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If you need help choosing your contribution rate, use a savings calculator to determine the percentage that will best help you reach your goals and determine how it will affect your paycheck. Take the extra few minutes to make sure the most popular choice is also the right choice for your particular scenario. If it isn't, maybe you'll be the new trendsetter for the group. Going with the most popular choice may be easy, but that choice may fall short of what you need for your long-term plan.

Scott Holsopple is the president and CEO of Smart401k, offering easy-to-use, cost effective 401(k) advice and solutions for the every-day investor. His advice has been featured on various news outlets including FOX Business, USA Today and The Wall Street Journal. Keep tabs on Scott on Twitter and Facebook