The Big Flaw in Your 401(k) Plan

Wall Street makes more money on actively managed funds at the expense of the investor. There is no proof than any investment manager can consistently and predictably beat the market. When saving and investing for retirement, prudence must be a top priority.

English: Cropfield and Woodland near Bourton, ...
English: Cropfield and Woodland near Bourton, Shropshire At the end of the field, on the right is the Woodhousefield Plantation. That, and the smaller patch of woodland on the left are actively managed for pheasant. (Photo credit: Wikipedia)

Plan sponsors are typically not familiar with the data indicating the majority of actively managed funds underperform their benchmarks in any one year and over longer periods of time. They don’t know there is no credible, peer-reviewed data demonstrating that anyone has the expertise to prospectively select outperforming actively managed funds. This lack of basic due diligence makes them easy prey for advisers who claim to have an expertise that doesn’t exist.Take a look at your 401(k) plan investment options. They are most likely predominately actively managed funds, with management fees of 1 percent or higher. Ask your adviser to justify including these funds in the plan. Don’t accept the glib, patronizing response you are likely to get. Insist on a written answer detailing their methodology. Make them demonstrate their approach works by providing at least 10 years of data from their five or 10 largest clients, showing the dates when every fund entered and exited the plan. I can tell you with great confidence you won’t get it. If you do, and you don’t have the ability to analyze it, send it to me. I will do analysis and will publish the results without disclosing any names.

The Wall Street bullies want you to believe that they can pick the right stocks and time the market correctly. There is no evidence that anyone can actively trade and beat the market.

Please comment or call to discuss how this affects you and your company.

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