This type of thinking is largely responsible for the success of our investment recommendations to date. Importantly, we were able to recognize the quality of these funds five,
ten and fifteen years ago so when we report that a given fund has performed in the top 10% within it’s category over the past five and ten years our client's participants actually benefited from that performance.
Clearly, we cannot promise similar results going forward and some of our chosen investments haven’t performed as well. Our goal is to provide investment options that consistently perform in the top 30% within their category (large growth, large value, etc.), this as measured over multiple rolling five year periods. To us the worst acceptable result is mediocrity—average performance. Those that cannot meet the standard are replaced, which is one advantage of open architecture plans; individual pieces of the plan can be changed without changing the entire plan structure.
Fees and investment: There are those that focus on the fact that most actively managed mutual funds fail to outperform the market index with any regularity. This is true. Somewhere in the area of 80% to 85% of funds fail to outperform “the market” on a consistent basis. If we accept this as fact then the argument goes that we should just invest in the index. Fees are the only thing that we can actually have some control over so we will invest in low cost funds that are index funds.
Our approach is not anti-low-fee in any way. But if 85% of funds fail to outperform the market consistently doesn’t that leave 15% that do outperform consistently? If we can find investments that have an extended track record demonstrating the ability to outperform and the consistency that provides confidence that this history will continue going forward doesn’t it make sense to choose that investment?
Funds that meet this criteria might not have the lowest fee but most have reasonable fees. One such fund has outperformed the S&P 500 , net of fees, in every ten year period since it’s inception (1969) and did so by roughly 2% per year. That kind of consistency has given our clients the opportunity to truly make the most of their
retirement plan investments. 2% may not seem like a lot but over a long enough time
period the extra 2% can mean twice as much at retirement.
Do you think your plan might benefit from that type of investment thinking?
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