An exasperated investor checks his 401(k) on his tablet.
If your 401(k) rode growth-oriented tech stocks to new heights in recent years, it may be time to change your investment strategy.
With stock markets down double digits this year amid economic instability and steep selloffs, growth stock funds are no longer the top choice for the 100 largest 401(k) plans. Instead, actively managed funds that focus on value, income or a balance of equities and bonds are now the top performers within the largest retirement plans, according to Bloomberg.
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Citing data from BrightScope, Bloomberg reported that eight of the 10 most popular top-performing retirement funds are now actively managed. This marks a significant departure from trends of the last decade, when only 17% of actively managed funds outperformed the S&P 500 Index, Bloomberg reported.
Top Performing Retirement Funds in 2022
Actively managed mutual funds that focus on value investing, income investing or a balanced approach have supplanted growth funds as the top performers in 401(k)s, according to Bloomberg.
Bloomberg notes that even the value-oriented funds that have posted the strongest performances in 2022 haven’t fared well. Instead, their losses have been far less than the losses posted by the larger indices. For example, the S&P 500 is down more than 14% year-to-date as of Monday afternoon, while the Nasdaq Composite has lost nearly 24% since the beginning of the year.
That’s led to a drop in the average value of a 401(k). According to Fidelity, the average 401(k) balance fell from $130,700 in the fourth quarter of 2021 to $121,700 in the first quarter of 2022.
Meanwhile, the top-performing fund within the 100 largest 401(k) plans has been the Vanguard Equity Income Fund Admiral Shares (VEIRX), an actively-managed dividend fund that was down only 0.2% as of June 2.
Here are the top-performing funds among the 100 largest 401(k) plans as of June 2, according to BrightScope and Bloomberg:
Vanguard Equity Income (VEIRX)
Actively managed dividend income fund
Dodge & Cox Intl. Stock (DODFX)
Actively managed international stock fund
Vanguard Value Index (VVIAX)
Index fund focused on large-cap value domestic stocks
Fidelity Low-Priced Stock (FLKSX)
Actively managed fund focused on stocks priced at or below $35 per share
Dodge & Cox Stock (DODGX)
Actively managed domestic value fund
Vanguard Inflation-Protected Securities (VAIPX)
Seeks to provide inflation protection and income consistent with investment in inflation-indexed securities.
MFS Value (MEIIX)
Actively managed value fund
Dodge & Cox Income (DODIX)
Actively managed bond fund
American Balanced (RLBGX)
Actively managed balanced fund
Active vs. Passive Management
Mutual funds can be managed either actively or passively.
Mutual funds vary based a number of factors, including how they are managed. Actively managed funds are overseen by fund managers who are responsible for deciding what kinds of assets the fund should invest in. Actively managed funds attempt to outperform a benchmark, like a stock index.
A passively managed fund differs in that it simply tracks an index and looks to match its performance, not beat it. Because passive funds typically record fewer tactical transactions, they typically carry lower expense ratios than their actively managed counterparts, making them more affordable investments.
Retirement savers rode the momentum of a long-running bull market in recent years, but the growth stocks that surged during that time are now floundering. According to Bloomberg, actively managed funds that focus on undervalued stocks, income-producing assets or take a balanced approach to investing in stocks and bonds have supplanted growth stocks as the most popular retirement plan investments. While the top performing funds in the 100 largest 401(k) plans have posted losses in 2022, their losses have been far less dramatic than those of larger market indices like the Nasdaq Composite or S&P 500.
Tips for Saving for Retirement
A financial advisor can help you plan for retirement and select investments for your 401(k) or IRA. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
When picking mutual funds for your 401(k) or IRA, don’t forget to compare the expense ratios charged by different funds. An expense ratio is the percentage of your total assets within a fund that are deducted on an annual basis to pay for management, recordkeeping and administration. These fees may seem minuscule, but even a small difference in ratios can add up to big savings in the long run.
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