Key Takeaways for Success

To maximize your retirement investments, follow these key takeaways:

• Educate Yourself: Discover your Personal Rate of Return through your online account. By understanding this metric, you can track your investments’ performance over time, considering factors like contributions, withdrawals, and market fluctuations.
• Focus on Portfolio Performance: Evaluate performance, risk, and return at the portfolio level. Doing so gives you a comprehensive understanding of how your investments are working together to achieve your financial objectives.
• Use Appropriate Benchmarks: When comparing funds, use benchmarks suitable for each asset class to make accurate assessments. Benchmarks provide a standardized yardstick for evaluating fund performance relative to market conditions.
• Mind the Fees: Be aware of the fees associated with your retirement plan and other accounts, ensuring they're reasonable relative to the services offered. Evaluate factors such as investment selection, financial planning services, and customer support. By striking a balance between fees and services, you can optimize your investment returns while maintaining a cost-effective approach to financial management.

Helpful Resources:

Article from Morningstar “Bad Timing Cost Investors One Fifth of Their Funds’ Returns”

Mind the Gap-Introducing Investor Returns - Morningstar Investment Conference 2017

As you plan for your golden years, understanding how to evaluate investment performance is paramount. At Pinnacle Pension, we recognize the importance of making informed decisions about your retirement funds. While many rely solely on the investment performance reports provided, digging deeper and assessing your portfolio’s true performance with the help of an experienced pension consultant is crucial. Here's how to do it right.

The Challenge of Traditional Reports

Typically, retirement plan recordkeepers publish investment performance reports to showcase how the plan's funds have performed. However, these reports often fall short as they don't accurately reflect individual employees’ portfolios. Why? Because they fail to account for cash flow, such as contributions and withdrawals, which significantly impact overall returns.

This oversight leads to a common mistake among plan participants: chasing the "hot" fund based solely on past returns. Unfortunately, regulatory bodies like the Department of Labor (DoL) and the Securities and Exchange Commission (SEC) inadvertently encourage this behavior by focusing more on past performance disclosures than guiding employees toward prudent investment strategies.

Empowering Employees with Knowledge

At Pinnacle Pension, we believe in empowering employees with the knowledge they need to make informed decisions. Firstly, it's essential to understand that your actual portfolio performance can be found in your online account—a valuable resource often overlooked by many participants.

Advisors are crucial in helping employees align their investment performance with their goals. This involves emphasizing the importance of overall portfolio management and asset allocation rather than fixating on individual fund performance. Additionally, employees should conduct apples-to-apples comparisons of funds, utilizing appropriate benchmarks for each asset class. A pension consultant can help employees better understand how to make adequate comparisons.

Beyond Returns: Evaluating Risk and Fees

Investment performance isn't solely about returns—it's also about the level of risk assumed to achieve those returns. Employees must carefully weigh the potential returns against the risks involved, ensuring that the chosen investment aligns with their risk tolerance and financial objectives. Moreover, understanding the impact of fees is paramount. Whether embedded within funds or charged separately, fees can significantly erode your bottom line over time, thus diminishing the overall returns on your investments. Investors can make more informed decisions that contribute to their long-term financial success by considering both risk and fees alongside returns.

At Pinnacle Pension, we're committed to guiding you toward a secure and prosperous retirement. By effectively evaluating investment performance, you can make informed decisions that align with your long-term financial objectives. Remember, it's not just about chasing the hottest fund—it's about building a diversified portfolio that works for you. Contact one of our pension consultants today to learn more about the current performance of your investments and how to optimize them.