Questions To Ask The Benefits Department

I have always wondered why plan providers do not disclose what your are investing in exactly. Many company retirement plans have no idea what they own. Fund management companies should disclose the exact holdings of their funds to IRA and 401k investors. This will help company employees to know the exact funds that they are investing in. Unfortunately since many do not, employees are left holding portfolios that they are unsure about.

Here is how broadly investments may be defined in a 401k:

Aggressive growth mutual funds

I have seen portfolios that classify Microsoft and Dell as growth stocks. Some portfolios consider any technology stock worthy of placement in a growth portfolio. These companies haven’t been growth stocks in over a decade. That is why you need to try and find out what your fund considers growth.

  • What classifies stocks in these funds as growth stocks?
  • What annual rate of growth is looked for in the investments in these funds?
  • Does this fund invest domestically or internationally?

Moderate risk mutual funds

I am often confused as to what exactly this means.

  • Does moderate risk mean that a portfolio invests in risky stocks and balances the risk out with AAA rated bonds and money market accounts?
  • ¬†Or does it mean that a fund is strictly composed of quality mid cap stocks?

Moderate risk can mean a number of different things depending on the assets in the plans. Check the returns of these funds against bull and bear market periods. This will help to determine whether you are truly buying a moderate fund. If your fund has incredibly wild swings when the market is down then your fund is not as moderate as you think

Conservative mutual funds

A conservative fund could be one that invests in only government treasuries and high grade bonds or one that only buys large cap stocks. A fund that invests only in Treasuries would produce a safe low rate of return. A fund that invests in large cap stocks may not be as conservative as you think. Prior to 2008, many fund managers considered financial stocks very conservative investments. They placed companies like Bank of America, Citigroup, and PNC Financial in the portfolios of conservative fund investors. A truly conservative fund should not produce the great results that the market earns during bull markets. It should also not go through the huge dips that the market suffers during bear markets.

  • How conservative is this fund?
  • Are the investments in this fund guaranteed or not?
  • Is there any risk associated with this fund?
Those are just a few of the things that you need to look at when your plan used broad terminology to cover a whole fund class.

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