The Tour de France, the world’s most famous cycling event, kicks off next Saturday, July 6th.
For those that are unfamiliar with the event, the Tour de France features 22 teams comprised of nearly 200 of the best cyclists in the world. The race is a grueling 23 days and covers more than 2,000 miles.
Several days of this race will feature riders packed together in a group. In cycling terms, this is called the “peloton.”
The faster cyclists pull ahead of the peloton. The slower cyclists who struggle with the grueling pace will lag behind. Like a school of fish, there is a certain “safety of numbers” within the peloton. Riders conserve energy by riding closely together and drafting off one another.
This same principal can be applied to your company 401(k). The peloton represents the default menu of mutual funds in your company 401(k) account.
This large group of mutual funds goes up and down with the economic and stock market cycles. Over time, there will be a small handful of mutual funds that break away from the pack. The majority of mutual funds will fall well behind the pack.
Your investment management challenge is to identify the small number of mutual funds in your company 401(k) that outperform all the rest.
I advise my individual company 401(k) investment advice client using a Relative Strength mutual fund ranking. This ranking list is designed to identify those mutual funds that are breaking away from the pack of default company 401(k) retirement plan mutual fund options.
Relative Strength measures how much investment performance progress each mutual fund is making relative to all your other company 401(k) retirement plan mutual fund options.
Ranking your company 401(k) mutual funds allows you to clearly identify those mutual funds who are clearly lagging behind. You don’t want to own lagging mutual funds.
There is no sense taking all the risks associated with being 100% invested in the stock market and not getting rewarded.
Some stock market cycles reward large cap mutual funds more than small or mid cap funds. Lately, bond mutual funds have had their day in the sunshine.
Relative Strength rankings are able to adapt to any stock market condition. This ranking tool provides the answer to the age-old question that plagues each individual company 401(k) retirement plan participant.
“What do I buy?” A Relative Strength ranking solves that investment management problem.
Ric Lager
Lager & Company, Inc.
