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April 10, 2019 at 11:05 PM
Elmer Rich III
These are some good standard steps. More concerning is some research we have been studying suggesting the serious problems in administrator and participant fund selection – precisely the problem advisors can help plan sponsors and participants with. In brief, here is some of what we learned with more coming as we go thru the research papers:
“....It is interesting to note why these differences in return occurred. The bulk of the differences in Sharpe ratios occurred because the plans had much more risk than a portfolio comprised of the 8 RB indexes. The problem lies not in plans selecting individual mutual funds that perform badly, but rather: in plans offering too few investment choices, choices with high risk, choices that are too highly correlated.
This means that, for 62% of the plans, the plan participants would be better off with additional investment choices. In fact, if these plans spanned the 8 RB indexes, participants’ average return would improve by 3.2% per year, which is 42% of the return on an 8-index portfolio with the same level of risk. While significant on a 1-year basis, over a 20-year period (a reasonable investment horizon for a plan participant), the cost of not offering sufficient choices makes a difference in terminal wealth of over 300%...”
More is posted on our blog – http://wp.me/pXvvI-k2. We are glad to share the papers and citations and will be writing a full review.