There have been some positive changes in the company 401(k) mutual fund world over the last few years. In this blog post, I want to make sure if you were aware of these changes.
First, mutual fund expenses have come down dramatically. Fund expenses in 2019 were just 0.45% – compared with 0.87% in 1999. Average fees of actively managed funds in 2019 was 1.08%. For index funds, the average fee was as low as 0.61% in 2019.
The first question is, do you currently own the lowest cost mutual funds on your default company 401(k) mutual fund menu?
The largest institutional stock market investors are spending more and more of their time investing in individual stock market sectors. These large mutual fund and hedge fund managers are buying individual stocks in specific stock market sectors.
As it relates to your company 401(k) mutual fund menu, you have to become much more aware of the stock market valuations….value, growth, and blend…and stock market capitalization…large, mid and small…of the mutual funds you own.
Historically, sectors of the stock market, or mutual fund asset classes, have produced equal or higher investment returns than individual stocks.
The second question is, do you know the styles and asset classes of the mutual funds your currently own in your company 401(k) account?
I am continually surprised by the number of individual company401(k) retirement plan participants I meet with who don’t know this information.
In the 15 calendar years ended in 2019, the S&P 500 Index outperformed 90.5% of all actively managed U.S. large-cap funds. This fact is regardless of the style of asset class of mutual fund.
My 21 years of reviewing company 401(k) retirement plan mutual fund menus gives me a great deal of confidence in making the following statement.
The vast majority of the mutual funds offered on any company 401(k) retirement plan default menu should not be owned. That fact is true for up, down, and sideways stock markets.
Regardless of the number of mutual funds offered in your company 401(k), there are less than a handful that are low cost, in the right asset class, and have better investment performance than the S&P 500.
Third, do you own any mutual funds now in your company 401(k) account that would qualify for this very short list?
Ric Lager
Lager & Company, Inc.
