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You are your 401(k)'s worst enemy

Jason York | E+ | Getty Images

After all the worrying over not getting enough growth out of your retirement investments, it turns out that you might be your 401(k)'s worst enemy—damaging your nest egg by trying too hard to invest.

Auto-enrollment into target-date funds has become the default investment option offered by employers for participants in their company plan. The professionally managed, "auto-pilot" funds are designed to shift asset allocation from more aggressive to more conservative as one gets closer to retirement.

Yet even with the rise of the target-date approach, 70 percent of employees still pick their own investments, according to a new analysis by JPMorgan Retirement Plan Services of the more than 2 million participants across its large plan client base, and that has not been a good decision.

Looking at nearly 700,000 participants' investment strategies, JPMorgan found the best 401(k) performer to be target-date funds.

Over the past three years, the average target-date fund return was 12.6 percent while the return for those individuals who managed their own accounts was 11.4 percent.

Ironically, one reason do-it-yourself investors have underperformed is because they end up acting like "do-nothing" investors.

"Ninety percent of participants are parking their money in their investment choices and are not moving or monitoring them," said Donn Hess, managing director at JPMorgan Retirement Plan Services.

(Read more: How to rescue your retirement at 55)

Employers, concerned that unguided participants could start to voice their dismay over disappointing returns—possibly making the case that plan sponsors were not fulfilling their fiduciary duties—are taking action to ensure that retirement savers get on the right track.

One solution that employers have turned to is something called re-enrollment. It moves employees out of self-directed investment plans.

Much like auto-enrollment for new employees—who are defaulted in to target date funds across many plans—re-enrollment defaults all employees into target-date funds. Employers often use this tactic when they transition to a new plan provider. However, there has been an uptick in plan sponsors who are re-enrolling without changing providers. It's a sign that resetting employee investments into more balanced portfolios is becoming a priority.

(Read more: Signs that your 401(k) really stinks)

In order to go back to your "do it yourself" investment strategy, plan participants must choose to opt-out on their own and then decide on where they want to stash their cash. Hess said, "When re-enrollment happens, they are staying." Only a third or less decide to opt out once they have been re-enrolled into default funds, JPMorgan found.

David Blanchett, head of retirement research at Morningstar Investment Management, said he would recommend plans go even further than only taking advantage of a plan move to re-enroll employees in target-date funds.

Blanchett thinks plans should re-enroll participants every year in target-date funds—or require them to opt out—even when the plan is not changing administrator. "One thing that I am certain the research on individual investors shows is that when it comes to investment decisions, people are bad investors," Blanchett said.

Do-it-yourself investors "need to be forced to revisit that decision once a year," Blanchett said. He said the problem is particularly acute for participants who have already been in plans for five to 10 years and may have enrolled before there were target-date funds.

"It's relatively uncommon to re-enroll automatically in target-date funds because it costs a bit, but it is the best outcome for participants," Blanchett said.

By Anthony Volastro, CNBC Segment Producer

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