Most individual investors are overwhelmed by the investment management decisions that are required to manage their company 401(k) retirement plan accounts.
Those individual investors who are not overwhelmed don’t pay close enough attention to their company 401(k) retirement plan accounts in the first place. These individuals are worse off than “buy-and-hold.” They practice “buy-and-hope.”
Everyone has their own area of expertise. For your legal work, you go to a lawyer. You don’t fix your own teeth. You don’t operate on yourself. Most individuals don’t change the oil on their cars. Why would you think you can pick the best options on a menu of mutual funds?
Here are the three steps necessary to improve the mutual fund choices on your current company 401(k) retirement plan menu.
First, define your inventory of mutual funds. Most company 401(k) retirement plan menus are divided into four major asset classes. These are US Equities, International Equities, Fixed Income, and Money Market. Think of each of these asset classes as an individual team.
Next, you should rank the investment performance of each of these teams against each other. Ask yourself, which one of these teams is beating the other three teams in head-to-head competition?
The best team to own right now is U.S. Equities. Fixed Income would be second.
Third, each asset class or team is made up of individual players. Think of the individual mutual funds on your default company 401(k) retirement plan menu as players.
Rank each mutual fund player against all your other mutual fund players. Count up the number of wins by each mutual fund in the head-to-head competition between the players.
I think you can guess the final investment management question. Who are the best players on the best team? The best individual mutual funds in the best asset classes are the only mutual funds you should own now in your company 401(k) retirement plan account.
Small and Mid-Cap Growth U.S. mutual funds should be the best-performing mutual funds available to you now.
If your company 401(k) retirement plan account is invested in any other mutual fund options, you are suffering from the two most common investment management mistakes made by individual investors.
One, a large portion of your company 401(k) retirement plan account is underperforming. You are taking all the risks associated with stock market investing, but you are not enjoying all of the best investment returns.
Two, you are paying investment management fees to own the wrong mutual funds. Said another way, you are not getting the investment performance that you are paying for.
Each of these problems is easily fixed. Go back to the first step outlined above.
Ric Lager
Lager & Company, Inc.
