Investment Options

401kMost 401(k) plans offer a fairly broad assortment of mutual funds to their participants.   This variety does not improve performance (in fact some research has suggested that too many investment options overwhelm participants and may actually reduce participation levels).  The biggest factor in long-term investment performance is fees, and the fees charged by most actively managed mutual funds simply cannot be justified when one looks at their long-term performance.   Of the 16,250 fund with 5-year histories through 2003 tracked by Morningstar, random chance would suggest that 508 would outperform the market each year. Only 177 actually did. Most investors paid a premium to underperform the market.*

Seemingly small differences in fee levels could add up to hundreds of thousands of dollars over time, which is why we String Financial recommends non-actively managed ETFs and index funds.  The difference in expenses between an average equity income fund and a similar ETF could mean a nearly 20% difference in the value of a portfolio over 30 years (see illustration).  

String has developed a menu of ETFs and some select, low-cost mutual funds for use in its proprietary products.  These investment options are evaluated regularly on relative performance, cost, and volatility.  Though String™ will accommodate any investment options outside of these products, participants are encouraged to select indexed and low-cost options in self-directed accounts.  Additionally, String™ will assume fiduciary risk for investment selection and indemnify plan sponsors that limit DC plan investment options to those on our pre-screened menu.


*Record Keepers’ fees restrict 401(k) choices” (letter to editor), InvestmentNews, Parker L. Payson, EVP, Employee Fiduciary Corp, June 19, 2006

 

 


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