Many 401(k) Plans are Museums For Former Top Funds

The good folks at Brightscope unveiled a list of the top 401(k) mutual funds in the marketplace by distribution. Looking at the list, it will certainly give you an idea of what the top mutual funds were, 5-10 years ago.

American Growth Funds of America, Fidelity Contrafund, and Pimco Total Return were some of the top distributed funds. Unfortunately, some of the funds on the list like Fidelity Contrafund have seen better days.

Too often, there is a herd mentality where some financial advisors run after the hot mutual funds of today and once those funds get too big to manage, their returns start to stall. We saw this with former stars like Fidelity Magellan, many of the Janus Funds, and Federated Kauffman.

It is a sad story that many 401(k) plans have become museums to the former top funds of yesterday. This is the case where the Plan has no advisor or an advisor who never bothers to sit down with the plan sponsor and review the returns of the funds versus the investment policy statement (if they actually have one).

My great grandmother often said that you shouldn’t run after the carriage if it won’t pick you up. When it comes to selecting mutual funds for a 401(k) plan, you shouldn’t run after the carriage if it picks everyone else up.