Somebody sold something to somebody else. That is how your company 401(k) was established.
A large financial services provider like Fidelity, Schwab, or Empower. Provide a default menu of mutual funds you never heard of before. And you get to figure out how to protect and grow your most important retirement asset.
Only in America.
But you don’t have to settle. You can personalize your company 401(k) account. To take the level of stock and bond market risk you are most comfortable taking. And not lose giant amounts of principal every few years.
You don’t have to have “a lot of money” in your 401(k). You can personalize your retirement account with your first pre-tax contributions. And any company-matching contributions you qualify for.
The reality is that you have to own stocks. And you have to figure out the best mutual funds on your default 401(k) that invest in the best stocks.
The financial services industry gets hung up on age. Risk tolerance. Time horizon.
I have been advising individual 401(k) investors for over 25 years. They all want to “make money” when the stock market is going up. And they all want to avoid losing money when the stock market is going down.
It’s not hard. The investment management goals are the same for any age. Net worth or tolerance for risk. You have to know “what to buy” on your default company 401(k) mutual fund menu.
Do you play fantasy football? Most likely you do. Or you know someone who plays each week of the football season. You at least understand the concept.
You create a team of players. Chosen from a larger pool. You score points based on how well those players perform in games.
Your 401(k) mutual funds ranked like fantasy football players. Ranked on annual costs and investment performance. Mutual fund invest in sizes of companies: small, mid, or large. And types of companies: growth, value, or blend.
You don’t need to spend the time and energy to pick your 401(k) mutual fund fantasy team each week. Pay attention to the macro trends of the stock market and interest rates.
The biggest driver of your 401(k) investment management success is the types of mutual funds you own. The asset class of the mutual funds you own.
And don’t forget your bond mutual funds. Dangerous to own lately. Even in the popular target date 401(k) mutual funds. The mutual fund rankings can improve your bond mutual fund choices as well.
You should only own the highest ranked mutual funds on your default 401(k) menu.
You can use diversification, asset allocation, and dollar cost averaging. And any other made-up invention of financial services propaganda. Own the highest ranked 401(k) mutual funds.
Experience tells me that your 401(k) investment management goals are unique. So your 401(k) mutual fund choices should be unique as well.
Make sure your 401(k) mutual fund choices are customized for you. The percentage of stocks versus bonds you own. That percentage should look different than everyone else you know.
Ric Lager
Lager & Company, Inc.
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