The 2017 Quantitative Analysis of Investor Behavior (QAIB) study was published recently. Since 1994, this study measures the effects of the investment decisions that individual investors make to buy, sell, or hold on to their mutual fund investments.
Let me save your reading time by summarizing the bad news with the following quote from the study.
“No matter what the state of the mutual fund industry, boom or bust, investment results are more dependent on investor behavior than on fund performance.”
The simple fact of the matter is that most individual company 401(k) retirement plan participants don’t know “what to buy.” They are confused and have a very hard time determining the best mutual fund options to own on their default company 401(k) retirement plan menu.
Since the bottom of the current stock market cycle in March 2009, all stock market mutual fund investors have made money. But the vast majority of individual company 401(k) retirement plan participants don’t own the best mutual funds options available to them.
There is a huge gap in the investment performance available on a company 401(k) retirement plan menu versus the investment performance earned by the individual company 401(k) retirement plan participant.
That gap costs the individual company 401(k) retirement plan participants tens of thousands of dollars over their working career. With the investment advice technology available today, there is no reason for this situation to continue.
There is a chart in the Dalbar report that states that the average investor earned 3.64% a year over the 10-year period ending in 2016.
Here is the bad news. The low-cost S&P 500 mutual fund option found on most default company 401(k) retirement plan menus returned 6.95% over the same time period. That number is almost twice the amount of the average investor returns.
I have no idea of the size of the current balance of your company 401(k) retirement plan account. But if you compare the investment return of the S&P 500 over the last 10 years versus your investment returns, the gap number is going to get your attention.
For the last 8-plus years you have been able to buy-and-hold and pay no attention at all to your company 401(k) retirement plan account. But it would have been hugely more profitable for the growth of your company 401(k) retirement plan account to have owed the best mutual funds available to you.
If you had another $50-75,000 in your company 401(k) retirement plan account balance today, would your confidence in a more secure retirement be higher? My guess is that the answer would be yes.
In a favorable stock market, the investment returns are there in your company 401(k) retirement plan account. Work a little harder to make sure that you get your share of those returns.
Ric Lager
Lager & Company, Inc.
