Every individual investor knows he or she cannot control the direction of the stock markets or interest rates. But do these same investors realize the two parts of a successful investment management strategy they can control?
Mutual fund choices on your company 401(k) retirement plan menu should always include two main elements. Those key elements are annual expenses and investment performance rankings.
In 2019, the cost of owning mutual funds in your company 401(k) account continued to fall. This trend was recently disclosed in The Investment Company Institute report “The Economics of Providing 401(k) Plans: Services, Fees, and Expenses, 2019.”
The report disclosed that 401(k) plan participants investing in equity mutual funds incurred an average expense ratio of 0.39% in 2019, compared with 0.42% in 2018 and 0.77% in 2000.
It turns out that company 401(k) retirement plan sponsors are cost-conscious. Law suits have a tendency to get the attention of companies that did not pay close attention to their company 401(k) costs in the past.
Now, let’s look at the second key element of successful long-term company 401(k) retirement plan mutual fund investing. Who is paying attention to the annual investment performance rankings of your default company 401(k) retirement plan menu mutual funds?
Your company hires a benefit consultant to help choose your company 401(k) mutual funds. These consultants use their existing mutual fund relationships to populate your default company 401(k) retirement plan menu.
Benefit consultants choose mutual funds to fill in mutual fund types. These types include equity, balanced, index, sector, etc. These mutual funds are then broken down into market capitalization levels—Large, Mid, and Small Cap, and mutual fund styles—Value, Growth, and Blend.
That is where the benefit consultants stop. The annual investment performance of all your company 401(k) mutual funds is a required disclose. But you have to look really, really close to find the meaningful numbers to compare.
There is a much better way to choose the best mutual funds to own in your 401(k) account.
Independent, third-party investment advisors can provide more specific and easier to understand investment performance research. This research includes up-to-date rankings of every mutual fund available in your company 401(k) account.
Each mutual fund is ranked, versus every other default mutual fund option. Essentially, each mutual fund has an arm-wrestling match with every other mutual fund on your company 401(k) mutual.
Each match is scored. The matches are counted. And each mutual fund receives a ranking score. In the end, these mutual fund rankings clearly define which mutual funds to own in the current stock market environment.
More importantly, these rankings clearly define which mutual funds should be avoided.
The laws of the mutual fund universe continue to lower your company 401(k) annul mutual fund cost across the board. It turns out a third-party investment advisor can play a very important role in the other important investment management decision facing individual company 401(k) retirement plan participants.
“What to buy?”
Ric Lager
Lager & Company, Inc.
