Purpose of the 401(k) Fund Spotlight Series


401(k) Fund Spotlight is an article series that I write on Seeking Alpha. The purpose is to help investors better understand the various mutual funds that are commonly available in employer sponsored retirement plans. Each article focuses on just one specific fund. Defined contribution plans, namely 401(k)s and 403(b)s, are the foundational retirement savings vehicle for many Americans. They should be maximized to the fullest extent. A detailed understanding of fund options is a worthwhile endeavor. 

To get the most out of these articles, it is important to first understand my approach to investing 401(k)s for my clients. Here are my key principles.


Approach to Investing 401(k)s

  • I do not select "index hugging" active funds if a similar index fund is available. Index hugging funds are those that are overly diversified and their performance never strays far from their respective index. Index funds almost always have a lower fee, so I prefer to just own the index and let the fee savings provide a performance tailwind over time. Lastly, index hugging active funds are generally managed by people who don't really know how to invest. This may sound harsh, but it is true. They are institutional herd products.
  • When choosing actively managed funds, I look for those with managers who are willing to go against the institutional herd and follow their own independent investment approach. I do not mind the higher fee if they have an established track record and it is not necessary that they always beat the index. Sometimes investment positions take a bit longer to pan out than investors would like to see on their quarterly statements. I take comfort in putting client assets with managers who are not afraid to stray from the herd.
  • I do not care what Morningstar says.


Thanks for reading! I hope you find this series beneficial.