Normal everyday company 401(k) retirement plan participants are asked to trust a large group of institutions who provide and manage their company 401(k) retirement plan accounts.
The company retirement plan sponsor, the company retirement plan provider, and the mutual fund manager all share this trust. This group is responsible for an investment environment that forms a company 401(k) retirement plan account.
Picking the company 401(k) retirement plan mutual funds to own is always the most difficult task. Hiring that mutual fund manager to manage your company 401(k) plan account money always carries the biggest risk.
Mutual fund managers are hired to outperform an index. The own a highly concentrated group of individual stocks in that index and remain 100% invested at all times.
In a good stock market, these stocks go up in value. Sometimes these stocks allow a mutual fund manager to “outperform” their benchmark index.
But when the stock market goes down, the investment management disconnect begins. The investment objective of your company 401(k) mutual fund manager is not the same as yours
The mutual fund manager has no motivation to preserve your company 401(k) retirement plan investment principal. The mutual fund manager has no stop loss in place.
The main reason for this huge disconnect is compensation. Like most things in business, it all comes down to revenues. The mutual fund company, and the mutual fund manager, are both compensated on the total amount of dollars invested in their mutual funds.
There is no common investment management sense to preserve past investment gains in the early stages of a falling economic and stock market environment. Mutual funds remain 100% invested at all times. That is how your company 401(k) retirement plan account generates the most management fee revenues for the mutual fund company.
Where do you think that the “Buy-and-Hold” investment strategy came from? Mutual fund companies created that investment management strategy many generations ago. Company 401(k) retirement plan accounts are a perfect example of that investment management behavior.
The U.S. economy and the U.S. stocks markets are currently going through a normal period of correction. Stock mutual fund managers will continue to “Buy-and-Hold” all the way to the bottom of the current economic and stock market cycle.
You are the only person involved in the investment management of your company 401(k) retirement plan account who can act to preserve your principal during the stock market decline.
Ric Lager
Lager & Company, Inc.
