Have You Checked Your 401k for Any Trash Lately?

It is critical that you stay on top of your investments, especially when it comes to your retirement accounts. After the initial setup most people just let their 401k or IRA run on autopilot, maybe checking the quarterly statements at best. Rarely do people continue to analyze their investment’s performance vs. an index or funds in similar categories. This lack of attention can allow for subpar funds to depress your portfolio’s overall returns.

I’ve been analyzing all the investments in both my own and my wife’s retirement accounts. I looked at the performance year to date of a small cap value (DFA US Small Cap Value I – DFSVX) fund in my wife’s 401k and the results were not pleasing. As you can see, DFSVX has severely underperformed the S&P 500 Index and the small cap index. To say underperformed is an understatement, DFSVX actually has a negative return for the year while the S&P and Nasdaq are both in double-digit positive territory. This performance is very troubling.

Comparing DFSVX to the S&P 500 (SPY ETF) and Fidelity’s Small Cap Index Fund (FSSVX)

However, when you go further back in time DFSVX the performance looks far better. Below is chart staring in Jan 2016:

DFSVX 2016 -17 performance

The second chart of DFSVX gives me a little comfort, but I’m still very concerned and will keep a close eye on this fund. DFSVX didn’t just magically appear in my wife’s 401k, I proudly selected it for her. I remember going through the various mutual fund options offered in her 401k and realizing that most of them were really, really awful. So awful I was only able to pick two funds for her account out of more than a dozen options. Obviously at the time I considered DFSVX to be one of the two best options. Fortunately this is only a small fraction of her retirement portfolio, less than 1%. Most of her retirement assets are inside a rollover 401k from a prior employer.

When was the last time you did an analysis of the funds in your 401k and/or IRA? Do you even know if you have any duds in there, one or two lazy funds that are dragging down your portfolio? Take the time to evaluate how your funds are performing relative to the S&P 500 and the appropriate category index. If you are using a financial adviser make sure they are routinely doing the same type of careful analysis. There are no shortcuts in investing! It takes time, energy and work to ensure your portfolio is optimized for maximum returns. PaperChase365

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