Include Index Funds to Lower Costs and Boost Growth
Your plan should include index funds and your advisor should help your participants understand the potential long term advantages.
Why? Because passive index fund expenses are typically 1/2 or 2/3 less than actively managed fund expenses. Paying less out of participant assets means that savings can grow more over time.
Index funds simply try to match the performance of a market index such as the S&P 500 or Russell 2000. Managed funds try to outperform various indexes by paying skilled managers. In turn participants pay the extra fund management expense.
Strong managed funds having productive strategies can outperform their indexes, especially if they carry low fund expenses. But studies suggest only 1/3 of managed funds outperform enough to justify their cost. So it’s important to offer index fund options in your plan's investment lineup too.
Including advisor-constructed managed allocation style models, that blend index and managed funds to suit a range of risk tolerances, can also be a great idea.
Also, a plan fiduciary adviser should be made available to help participants understand the index funds, managed funds, and managed model options available to them so they can choose the most suitable mix to fit their own financial situation and retirement objectives.
If you are not getting ideas like this from your current plan provider give us a call.