Choosing the best available mutual funds on your company 401(k) retirement plan menu is difficult for individual investors. This statistic proves that point. In 2014, 85?percent of mutual fund managers under-performed the benchmark S&P 500.
Investment professionals can’t pick the best individual stocks to invest in. That translates in to the investment performance of the stock mutual funds that they manage. It is no surprise that the majority of your company 401(k) retirement plan stock mutual funds also struggle.
There is a huge overlap of similar stocks and bonds in the company 401(k) retirement plan mutual fund holdings that I review. The majority of company 401(k) retirement plan accounts are overloaded with concentrated bets on two or three asset classes.
I see lots of large cap stock and bond mutual funds. I don’t see nearly enough of the small cap and mid cap mutual funds that have outperformed for the last several years.
Diversification is an investment management concept that calls for holding asset classes and mutual fund types that do not move in lock step with each other.
There is an easy solution to the lack of diversification problem.
Earlier in January, we enjoyed the first-ever college football playoffs. That playoff system used a ranking system to pick the final four playoff team. Think about using a similar ranking system for your company 401(k) retirement plan holdings.
There are online mutual fund ranking tools for mutual funds. These independent rankings will let you know the wisdom of continuing to own your company 401(k) retirement plan mutual funds.
Another option would be to enlist the services of an independent investment advisor. This advisor would not be connected with your company 401(k) retirement plan or your company 401(k) retirement plan provider.
Long-term investment success in mutual funds is heavily dependent upon owning the right kind of mutual fund. Take that information and use it to improve the investment performance of your company 401(k) retirement plan account menu.
Ric Lager
Lager & Company, Inc.
