Some men have strange hobbies. I gather and analyze the main 401(k) mutual fund menus from hundreds of companies.
In most cases, I am not impressed. Most 401(k) retirement plan mutual funds have the same investment management problems.
These mutual funds are too expensive. Their annual management fees most times wipe out a large part of any annual investment gains. Even in good stock markets.
Most 401(k) retirement plan mutual funds underperform their stock market benchmarks. Each year 85% of all U.S. mutual funds underperform the popular stock market averages. And their peer group annual performance benchmarks.
Do you play fantasy football? Even if you do not, I would bet that you can provide a logical answer to the following question.
Would you bet on the Tampa Bay Buccaneers or the Detroit Lions Cleveland Browns to win the Super Bowl next year? Most 401(k) retirement plan mutual funds equal to the Detroit Lions.
There are three ways to “make lemonade out of the lemons” you may find on your company 401(k) retirement plan menu.
First, find the S&P 500 index mutual fund option on your existing company 401(k) retirement plan menu. This type of mutual fund tracks the S&P 500 investment performance. It can provide you with broad U.S. stock market exposure at a reasonable annual cost.
You might be better off now investing in this index mutual fund. Remember, most mutual funds never beat this index. The other lackluster mutual funds on your company 401(k) retirement plan menu only cost more money to own.
Second, load up on the handful of best mutual fund options available on your default 401(k) menu. This is the preferred investment management alternative. Especially when your selection of mutual funds is limited.
Every company 401(k) retirement plan menu has one or two good mutual fund options. Think about loading up on these outperforming mutual funds. Avoid the rest of the high-priced and under-performing mutual fund options.
My 401(k) advice clients use a relative strength technical score mutual fund ranking. It is like playing fantasy football with your 401(k) retirement plan mutual funds.
These rankings provide a clear picture of exactly which mutual funds to own. And which ones to avoid.
Third, find out if you have an SDBA (self-directed brokerage account) option available in 401(k). Sometimes this account option called a “brokerage window.”
A self-directed brokerage account provides access to any mutual fund. Or ETF (exchange traded fund) in your 401(k). You can access lower-cost and better-performing investments to own in your 401(k).
Read the fine print. There may be annual costs and transaction fees associated with a self-directed 401(k).
Do not feel overwhelmed, Talk to an independent, third-party investment advisor. Find one who is not affiliated with your 401(k) retirement plan provider.
Unbiased fiduciary-level investment advice. It is a good thing for your 401(k).
Ric Lager
Lager & Company, Inc.
I have spent years trying to improve my social media skills. Trying to find the best way to share my 401(k) expertise. Twitter, Facebook, LinkedIn Groups, blogging, etc.
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