We Have All Been Here Before: An update on 401(k) Investment Trends

By Joe Gordon, Gordon Asset Management, LLC

2016 Alliance sponsor article courtesy of Gordon Asset Management, LLC

Humming the album cover title song, Déjà vu, to this Crosby, Stills, Nash & Young (“CSNY”) hit tune from the ‘70’s, I am reminded that stock markets always run in cycles, both bull, bear and range bound. From time to time, trends go abnormally long in either direction, especially when some secular trend is beginning and lasts so long that historical averages provide little warning or reminder that mean reversion can and always does happen, eventually.

The most recent trend is that passive investing in market-cap weighted indexes is the only way to go. It is not just the frugal millennials. Even 401(k) plan sponsors are under siege to either add passive or go totally passive in plan menu selection and monitoring. Furthermore, the rash of 401(k) lawsuits has propagated the myth that low fee index funds are a failsafe. This trend has resulted in over $300 billion dollars transitioning from active to passive in the 12 months ending June 30th, 2016.

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