Your Mutual Funds Are NOT For "Collecting"

Collecting items that you love is a great hobby. Finding, organizing, sorting and displaying your favorite collectibles is a great way to relax and get your mind away from the trials of everyday life and work. These treasures can also be passed down to future generations of your family.

Unfortunately, most Chicagoland individual investors pay more attention to their collectibles than they do to the mutual funds that they own. I have meet with many investors who have owned the same collection of mutual funds inside their company retirement plan account for several years.  In many cases with big "retail names" that they see on TV.

Mutual funds options in company retirement plan menus change yearly. Company retirement plan sponsors pay big money to company retirement plan advisors to keep the mutual fund options up-to-date with the stock and bond market indices performance.

In many cases, individual company retirement plan participants are automatically “transferred over” to the new company retirement plan mutual fund when the mutual fund they currently own is no longer available on the company retirement plan menu.  The majority of individual company retirement plan participants that I have met with are hard pressed remembering why they own the names of the mutual funds listed on their most recent company retirement plan account statement (besides the big ‘Retail Name’ of the mutual fund house).

A collection of your favorite hard-to-find items has sentimental value and will likely increase in value in years to come.  A collection of mutual funds built up over the years in your company retirement plan account MAY NOT increase in value and in fact can cause years of investment underperformance.

Large cap mutual funds make up the largest part of most company 401k and retirement plan menus. For that reason, most individual company retirement plan participants own a larger percentage of these mutual funds as the years go by.

Large cap mutual funds have NOT been the best place to be invested in the U.S. stock market in over 13 years. Small cap and mid cap mutual funds have outperformed most large cap mutual funds available on a company retirement plan menu.

Company retirement plan marketing materials often suggests that a diversified asset allocation investment strategy is the best way to grow the value of your individual company retirement plan account.  But the real life investment returns of the last several years suggest otherwise.  Beyond that, I find many investors with 2 or 3 funds in their portfolio almost identical to each other in – duplication.  With the stock market new multi-year highs, now may be a great time to review your current company retirement plan mutual fund holdings for duplication of the same category of mutual funds. The category of mutual funds that you currently own can be found on your company retirement plan account statement.

This may also be a good time to sell the worst-performing mutual fund that you currently own in that same category. Rather than reinvesting that same money in the stock market at a historical high level, think about keeping that money available to reinvest at a later date in the best small and mid cap stock mutual fund option available on your company retirement plan menu.

Stop picking (collecting) large cap mutual funds in your company retirement plan account 100% of they time.  Instead, seek out what is the best current category of mutual funds available to you today, and re-evaluate often.

Cheers, Ed.