Creating a diverse 401(k) lineup will help you minimize risk and maximize market opportunity. But how is this achieved?
The first rule of diversifying your 401(k) lineup is to invest in a broad range of asset classes that behave differently in different markets. To start, let’s talk about the two types of mutual funds to invest in: actively managed funds and passively managed funds.
An actively managed fund has a fund manager with control over the types of investments and how long to stay invested. This option is better-suited for those looking to manage their volatility, while hoping to outperform the indices or averages. These funds tend to have a higher cost since someone is actively managing the funds
Passively managed index funds, on the other hand, are low-cost options that follow the averages of the appropriate asset categories. These are good for those looking for a lower cost to invest, as well as those willing to stay invested through different market cycles—as there is not active management within the fund to protect during a down market.
We think there are good reasons to have both options available for your employees so that we can educate them on what may be best for them based on their goals and objectives. Having a diversified portfolio ensures that all your money is not in one place, meaning your assets are not as volatile.
If you have any other questions, would like more information, or are ready to take action and learn how you may be able to restructure your current plan, feel free to give us a call or send us an email. We look forward to hearing from you soon.