October is surely the best month of the entire year for a sports fan. NCAA and NFL football are in full swing. The NBA and NHL regular seasons begin this month. And the MLB playoffs are already as exciting as ever.
In Minnesota, we celebrated another WNBA championship earlier this month.
Every sports league ranks its teams during the regular season. At the end of the season, there are playoffs and the crowning of a champion. Participation in fantasy sport leagues grows each season.
Have you ever thought about using the same ranking system to the default mutual fund options in your company 401(k) retirement plan account? It’s easy. Just select a fantasy team out of the best mutual fund options found on your company 401(k) retirement plan menu.
First, those mutual funds would have to be ranked. Next, the rankings would be updated periodically based upon recent results. In the case of mutual funds, the two most important characteristics to rank would be investment performance and annual fees.
It’s fine to own expensive mutual funds. Just make sure that their investment performance is more than worth how much it costs to own that fund each year.
Every sports fan is loyal to their favorite team. But they also realize that there are just a small handful of teams that have a chance to be the eventual champion. Likewise, there are just a handful of your company 401(k) mutual funds that make sense for you to own.
Sure, there are always upsets. But as the season moves along, there are fewer upsets. The heavily favored teams in the beginning of the season most often make it through the playoffs and play for the championship.
Past leadership is often a positive indication of future outperformance. In the investment management world, that leadership concept is called Relative Strength ranking.
There is an old Wall Street adage that states “keep your winners and sell your losers.”
Today’s investment management technology allows individual company 401(k) retirement plan participants to access mutual fund relative strength rankings. There are clear mutual fund “winners” that are outperforming and “losers” that you want to avoid.
Relative Strength ranking identifies both the winners and the losers on your default company 401(k) retirement plan menu. There is no more guessing at what to own or why to own it. The Relative Strength ranking “is what it is.”
Relative Strength ranking your company 401(k) retirement plan mutual funds can improve your investment management decisions over the long-term.
You don’t need to turn your company 401(k) retirement plan account into an active trading account. But wouldn’t it be nice to know which mutual funds are working and which ones are not?
Ric Lager
Lager & Company, Inc.
