The vast majority of actively managed mutual funds that are available on default company 401(k) retirement plan menus have a long and miserable track record of providing less than stock market benchmark investment returns.
One of the last studies that I read stated that 80%+ of actively managed mutual funds fail to outperform their benchmark index over a serval year time period. That fact does not give individual company 401(k) retirement plan participants much confidence when they try to choose their mutual fund options.
The other glaring problem with actively managed mutual funds is that they are too expensive to own. This is especially true of the popular target date mutual fund options that dominate many company 401(k) retirement plan menus.
Trying to pick the best mutual funds on a company 401(k) retirement plan menu is difficult. Analyzing the annual costs, in addition to investment performance history, is next to impossible.
Index mutual funds are cheap to own. And lately, they have offered better investment performance. Even individual investors who don’t typically pay much attention to their company 401(k) retirement plan accounts are coming around to these realities.
Making the best investment management decisions on a company 401(k) retirement plan account menu comes down to watching annual costs and ranking annual investment performance.
You don’t have to try to “beat the market.” You just have to focus your company 401(k) retirement plan mutual fund ownership on finding the lowest costs and the best investment performance.
Both sets of data are available. Human investment advisors offer the best forum for this analysis.
Ric Lager
Lager & Company, Inc.
