Let’s face the facts. You did not choose the default menu of mutual fund options available in your company 401(k) retirement plan account. You basically have to make lemonade out of the lemons that were chosen for you.
Your company 401(k) retirement plan sponsor—your employer–has a fiduciary duty to select mutual funds that are varied enough in time horizon and risk levels that allow you to create a diversified portfolio of mutual funds.
Guess what? Your company does not know how to pick mutual funds either. So, they have to hire a fiduciary to help with plan fund selection.
Every wonder why your Schwab, Fidelity or Vanguard company 401(k) retirement plan account has so many mutual fund options from the same company that provides your company 401(k) retirement plan?
The company that provides your 401(k) stuffs their mutual funds into your company 401(k) retirement plan menu. Now you know that life-changing fact.
When the stock markets fall and interest rates rise like they both have done over the last few weeks, you are able to clearly see how diversified your company 401(k) retirement plan mutual funds really are.
Realize this; your individual company 401(k) retirement plan account has recently gone through its own brand of stress test.
If you own a mutual funds in your company 401(k) retirement plan account that are 100% invested in the stock market, you are not diversified.
If you own a bond or target date mutual fund, you have lost money over the last few weeks because U.S. interest rates are rising. Also, be aware that money you lost is in addition to the money you lost in your stock market mutual funds.
A diversified company 401(k) retirement plan account means that not all the mutual funds you own go down in value in a big way at the same time. I’m guessing that you are not even a little bit diversified with the mutual funds you currently own.
The last nine years of falling interest rates and a rising stock market have most likely come to an end. In fact, a case can be made that each of those historical investment cycles has already ended.
It is especially important right now to completely understand the reasons that you own each mutual fund in your company 401(k) retirement plan account.
It is great to think that your company 401(k) retirement plan sponsor and provider have helped you diversify your company 401(k) retirement plan account to lessen the damage or rising interest rates and a declining stock market.
Now is the best time to make sure that is what you have really done.
Ric Lager
Lager & Company, Inc.
