I wrote this article on May 8th, 2012 for my Golden Valley Patch Blog.
Just as sure as income taxes were due on April 17th, and property taxes are due on May 15th, you can be sure the stock market is going to drop—just as it’s done this week. But instead of passively watching the numbers fall, you should consider creating another financial decision deadline. Unlike tax deadlines, a new one that you create should actually alleviate some stress for Minnesota company retirement plan participants.
The exact timing of the next meaningful stock market correction is never known for sure. But history will tell you that after several months of better-than-expected stock market gains, a stock market correction should be coming any time now.
Whether the stock market drop turns into a short-term pullback or into a full-blown correction, you need to take a close look at the mutual funds that you currently own in your company retirement plan account.
The first quarter 2012 company 401(k) retirement plan statements that just arrived in your mailbox were a high water mark in your company retirement plan account values. That’s the good news.
The bad news is that most individual company retirement plan participants have never been able to keep their hard-earned stock market gains in the past. Most company retirement plan investors have ridden the stock market roller coaster both up and down again in previous stock market cycles.
That doesn’t mean you can’t preserve your current gains during the next stock market drop—whether it’s today or down the road. You may have already gained the largest part of the best investment performance available in some on your company retirement plan mutual funds.
Using your recent March 31, 2012 company retirement plan statement, take the time now to analyze the investment performance of each individual mutual fund you currently own.
Take a look at the investment returns on the mutual funds you currently own beginning on September 30, 2011 through the most recent company retirement plan statement period on March 31, 2012.
If any of the mutual funds you currently own has a large investment performance gap versus the S&P 500 index over that same time period, sell that mutual fund now and place the proceeds into the safety of the money market account in your company retirement plan menu.
You surely own some mutual funds that have not performed as well as the overall stock market averages. According to Morningstar, fully two-thirds of all mutual funds investment performance lags behind their respective benchmarks.
In the first quarter of 2012, only eight of the top 25 largest actively managed mutual funds beat the S&P 500 index investment performance. These are many of the same large cap mutual funds that are commonly found in several Minnesota company retirement plan menus.
Don’t continue to pay large investment advisory fees for mutual funds that did not give you even average investment performance during the recent stock market advance. There are clearly better mutual funds to own in your company retirement plan menu of options.
So create your financial decision deadline, and then meet it. When you do, you’ll be able to weather this week’s downs in the stock market along with the market ups and downs that will follow.
Ric Lager
Lager & Company, Inc.
