Beware the Names of Mutual Funds

Retail mutual funds are all about sales and marketing and often not much about sound investing. Most of them are continually changing their holdings causing high turnover and expenses. They are under-diversified. They have a high failure rate. If the fund company doesn’t market them enough and the fund has poor returns (often), they will die. The retail fund companies need to sale and market the funds – so they come up with names for the funds that help to sell them. Look over a list. Once you realize it’s all hype, it’s actually funny and maddening at the same time to review the names. The retail mutual funds that do get good returns – well they *did* get good returns and more often than not through lucky guesses. Often investors choose not by name but by recent recent fund performance. Unfortunately good performance is often followed with bad performance. Many investors go through their lives “chasing performance”.  The cycle of jumping on a band wagon, getting disenchanted and then looking for the next bandwagon. The mutual fund that I love to hate the most are “Stable Value Funds”. They are found in many 401k funds. They do tend to be stable. So that attracts people scared of the market. You have no idea how to invest and the word “stable” is very attractive. That’s the problem. They will get perhaps a 1-2% annualized return, while those in a highly diversified global portfolio will be get 7-9% over time. The salespersons selling the 401k plans, and those selling the stable value funds are dooming the employees to a very bad return of their hard-earned dollars...

How to infuse $255,300,000 into our local economy (for free)

True story and numbers.  I am currently speaking with a local company about their 401k plan. I put a scenario together to show them how the numbers add up. I did something new – I looked at how this could impact our local economy! The key difference is that the proposed plan provides 5 model portfolios designed by RIA’s (investment advisors). The assumption is that 99% of the employees would choose one of the models, whereas right now they are all over the map in a typical “big box insurance” plan. They have very “damaging” options like “stable value fund” which is like stuffing money in a mattress.  They have too many choices. They have a broker offering fund education instead of an investment advisor offering advice. The insurance company has inserted their own proprietary products that are impossible to examine for fees. The end result is the average employee gets a lower annual return on average. See the “illustration” (to use a classic insurance industry term) here. The bottom line is that the increased account value over the next 20 years, allows for the employee getting $255,300 more in a 25 year retirement. (More details in the link provided above.) Multiply that by 1,000 employees and the economy gets a $255,300,000 infusion of consumer spending from 2035 to 2060.  That’s a legacy I want to leave behind for our daughter. That’s leaving behind a better world! Yes, I love my family, clients, our community and my job.  What a difference we are making, one client, one 401k plan at a time! Now send us local 401k plan sponsors...