Last week, I came across another very good article from Morningstar. This great content was authored by Jeffrey Ptak. The title of the article is, “The Active Stock Fund Slump Explained.”
As a reminder, there are two main types of mutual funds available on your company 401(k) retirement plan menu. The first type is a passive mutual fund. This type of mutual fund follows an investing strategy that tracks a market-weighted index or portfolio. The most popular type of passive mutual fund is tied to the investment performance of a popular stock market index like the S&P 500
The second type of company 401(k) retirement plan mutual fund option is also the most popular choice. An active mutual fund that has managed da-to-day by a team of mutual fund managers.
The goal of actively managed mutual fund is to beat the stock market’s average annual investment returns. Your company 401(k) retirement plan active mutual fund managers gaze into their crystal balls to try to determine what to buy.
Take the time to read this article in order to more clearly understand the logic and the reasoning behind the facts that actively managed mutual funds are failing individual company 401(k) retirement plan participants in a big way.
Let me briefly offering my conclusions on this article. Passive mutual funds are great to own because of the lower annual costs. But it only makes sense to own these mutual funds when the economic and stock markets environments are going up.
Actively managed mutual suffer from several major flaws. As the author also concludes, some of these flaws “appear to be structural.”
It is a very good thing that more and more of my individual company 401(k) investment advice clients are moving away from their default menu of mutual funds. Instead, they are beginning to take full advantage of the self-directed brokerage option found on their current company 401(k) retirement plan menu.
Ric Lager
Lager & Company, Inc.
