I recently read an article about a study of mutual fund performance. The study determined whether the top-performing mutual funds over three-, five- and 10-year periods could sustain their performance in subsequent periods.
The final results of the study were very informative. In the 10-year period of time ending in December 2012 the study stated that, “After five years, nearly one-third of the funds had been closed or merged into other funds; after 10 years, nearly half had been closed or merged.”
I routinely get phone calls and e-mails from 401(k) advice clients who have received updates on the changes in the main menu mutual fund options in their Minnesota company 401(k) retirement plan menu.
Company 401(k) mutual fund options change every year. The majority of company 401(k) mutual fund options are not in business 10 years later.
The dollar balance of the closed mutual fund is “mapped over” to shares in a new and very similar mutual fund option. You would have to read the e-mail announcement that you receive very carefully in order to make sense of the mutual fund closure.
Most individual company 401(k) retirement plan participants don’t pay close attention to their company 401(k) retirement plan announcements. That is why I get the phone call and e-mail.
When a mutual fund is taken out of your company 401(k) retirement plan menu, the new mutual fund is never the same one that you owned previously. No matter what your company 401(k) retirement plan notices state, no two mutual funds are entirely the same.
You don’t want to be the new owner of another poor company 401(k) retirement plan mutual fund option. Take a very close look at the new mutual fund that your company 401(k) retirement plan provider intends you to own.
If you are not sure about it, make a phone call. Ask a friend. Call your investment advisor, or find one.
Ric Lager
Lager & Company, Inc.
