I recently ran across a 401(k) plan that did not provide an emerging markets fund for employees who wish to build their own portfolio with individual funds. Many conventional 401(k) providers focus on making sure that the funds in the plan have excellent recent track records. (Even though past performance is not a reliable indicator of future performance as is diversification and low expense ratio.) Since Emerging Markets were down not just in 2015 but also 2011, 2013 and 2014 perhaps the "advisor" servicing that plan decided they would skip an entire asset class since it would show poor numbers when they reviewed part performance? Is skipping an entire asset class a good idea?As you look at the MSCI Emerging Markets Index from 1988 - 2015, it was down 13 of 28 years - geez - why would you bother with that? Another good reason not to have it in the 401k plan?The S&P500 in contrast was down only 5 of those same 28 years. Gotta love that S&P500. But, wait a minute, what about the "Lost Decade" - 2000-2009 when the S&P500 had an annualized return of -0.9%. During the Lost Decade, Emerging Markets rolled with a +10.1% annualized return. Nice! I bet many 401k owners would have loved to have a nice chunk of their assets in Emerging Markets during the Lost Decade! (So many had their assets concentrated in S&P500 because they "understand" it. Concentration is the opposite of diversification and is our enemy as smart common sense investors.)But what about this entire period of 1988 -2015 when 13 of 28 years were negative for Emerging Markets? Well, a little surprise for you: S&P500: +10.3%, Emerging Markets: +10.5%. If you include Q1 2016, Emerging Markets outperforms a bit more, 10.6% to 10.2%. Here's a chart.
You go to a doctor and trust them because you expect they practice medicine based on science, data and evidence. Doesn't your money deserve to receive a similar treatment - to be based on science, data and evidence? Call it "evidence-based investing" or "common sense investing" - that's what we do. Unfortunately conventional investing is smoke & mirrors and marketing puffery. Always employ diversification both across and within asset classes, low expense ratio funds and re-balance.There are so many eye-opening examples like that which we love to share with you. One of our missions is to help people change the way they think about investing and financial planning. Conventional thinking about investing proves the saying that "common sense is uncommon".This includes how to properly structure 401(k) plans so that a larger percentage of employees have their hard-earned assets properly invested like pros. There's no reason that average hard-working Americans can't enjoy the same returns as prudent high net worth investors. The market return is there for the taking with a little help from common-sense experts like us. We know how to set up 401k plans that come with investment advice at the plan sponsor and participant levels and most importantly places a high percentage of participants in portfolios that will capture what the market has to offer. Conventional investing results in less than half achieving the market return.