There are far too many numbers referenced in personal finance articles. How on earth can individual company 401(k) retirement plan participants keep them all straight?
I focus my company 401(k) advice client’s attention on the only two numbers that really matter.
The first number is the answer to the following question. “What has been the investment return of the mutual funds you currently own compared to the other mutual fund options on your company 401(k) retirement plan menu?”
Pretty simple question, right? Compare the company 401(k) retirement plan mutual fund that you currently own to all the other mutual fund options available to you.
Mutual fund investment performance can be found on the investment performance table on your most recent company 401(k) retirement plan quarterly statement. Or go online at your company 401(k) retirement plan provider and look for the investment performance tab.
My guess is that you currently own more than one mutual fund that has lagged the investment performance of other mutual funds available to you. Said another way; you took 100% percent of the stock market risk but you don’t have nearly the investment returns to show for it.
When the stock markets are going up, you have to own the best mutual funds available. Simple goal; but most individual investors don’t make the necessary investment management decisions to follow it.
The second number is impossible to find on any company 401(k) retirement plan account statement or web site. That fact should immediately tell you that your company 401(k) provider and mutual fund companies don’t want you to figure it out.
I always make the following calculation available to my individual company 401(k) retirement plan investment advice clients., That number is how much money it has cost them over the last few years to own the wrong mutual fund options on their company 401(k) retirement plan menu.
I describe this number as the “cost of the problem.” If you own the wrong mutual fund it costs you money. How much money did it cost you?
The larger the number, the more urgent their current company 401(k) investment management problem.
The “cost of the problem” puts a dollar amount on much money you have missed not knowing which company 401(k) retirement plan mutual fund options to own.
If you keep an eye on these two numbers everything in your company 401(k) retirement plan account will fall into place. With the right resources you can do it yourself. Or you can hire an independent, third-party investment advisor who acts a fiduciary in your best interest.
Ric Lager
Lager & Company, Inc.
