This year’s NCAA men’s basketball tournament and “March Madness” will be the topic of conversation in every office in America this week.
The tournament begins in earnest on Tuesday night. A total of 68 teams will play in order to determine the eventual champion on Monday evening, April 2nd in San Antonio, TX.
The process of “seeding” teams began in 1979 as a way for the NCAA to make sure that the strongest teams didn’t end up meeting each other too early in the tournament. After all, TV ratings and their associated ad revenues are the most important part of the tournament experience for the NCAA.
Seeding provides the once-a-year college basketball fan a basis from which to make more informed decisions on their team selections. You don’t have to know anything about college basketball to understand the difference between a number 16 seed (the lowest ranked teams) and a number 1 seed (the highest ranked teams).
There has never been a number 16 seed to beat a number 1 seed in the history of the tournament. From 1985 to 2016, number 1 seeded teams have won a whopping 79.86% of all their NCAA tournament games. The NCAA men’s basketball tournament title has been won by a team with a number 4 seed or higher in 30 out of 33 years.
The NCAA men’s basketball tournament seeding process is a perfect analogy to use in ranking your default company 401(k) retirement plan mutual funds. Stick with me; this is a very simple investment management strategy.
The NCAA men’s basketball tournament committee has their own proprietary ways of ranking teams for tournament selection. Two of these ranking criteria are head-to-head games and overall wins and losses. A team with a high seeding is a strong team based upon qualitative and quantitative evaluation.
You can seed your company 401(k) retirement plan mutual fund options just like individual teams are seeded in the tournament. The seeding process can be based on a handful of the most important investment performance options; like recent price trends of one 401(k) mutual fund option versus all other 401(k) mutual fund options.
Which mutual funds showed the strongest investment performance when the stock market was rising? More importantly, which mutual funds lost the least value during the recent stock market decline?
Another way to seed your company 401(k) retirement plan mutual funds would be by annual costs and fees. This seeding will help determine if you are really getting what you are paying from your mutual funds.
Imagine the peace of mind if you knew you owned the lowest-cost and best-performing mutual funds in your company 401(k) retirement plan account every year!
NCAA basketball tournament history shows that top seeded teams perform much better than lower seeded ones. The same simple concept can improve your company 401(k) retirement plan mutual fund decisions.
Right now, you most likely own at least one mutual fund that is not a high seed. This mutual fund has gone up in value due to the good stock market environment over the last few years. But the investment performance is far behind the investment performance of the higher seeds found on your company 401(k) retirement plan menu.
Head-to-head mutual fund investment performance and annual cost comparisons can be made available to you by an independent, third-party, fiduciary level investment advice professional.
Every March, office peer pressure requires you to guess at your NCAA basketball tournament picks. The same company 401(k) retirement plan mutual fund selection guesswork needs to stop once-and-for-all.
Long term investment success in your company 401(k) retirement plan comes from owning the highest ranked mutual funds available to you. Give your company 401(k) retirement plan account the best opportunity to win the comfortable retirement tournament.
Ric Lager
Lager & Company, Inc.
