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Pie Charts Are So 2011

Focus on what is happening now.

Pie charts can be found in every Minnesota company 401(k) retirement plan account menu. The colors used in the pie charts in one company retirement plan menu are many times the same colors used in the pie charts in another company retirement plan menu.

Only in America!

You can view a pie chart of the stock and bond mutual funds that you currently own in your company retirement plan account.  These pie charts are based upon a quick test of your stock market risk tolerance and your current age.  These pie charts often are described by different names—Aggressive, Conservative, Moderate, Balanced, etc.

You can also view a pie chart on the web site of your company retirement plan provider.  This pie chart suggests the different mutual funds that you should own in your company retirement plan account. This pie chart will recommend at all times that you have the majority of your company retirement plan account assets invested in stocks.

Pie charts are always based on the historical investment returns of stocks versus bonds.  Stocks usually win that battle because they have had better historical investment returns than bonds. Therefore, it is assumed in the pie chart that stocks will offer better growth of your company retirement plan account over a long period of time.

The problem with pie charts is that they attempt to provide investment management decisions TODAY based on stock and bond market investment returns from YESTERDAY.

Common sense would tell you that you can’t make investment decisions going forward based on what has taken place in the past. You would never realize that level of common investment sense by looking at pie chart investment recommendations in your company 401(k) account.

Pie charts always look backwards.  The historical investment returns that make up pie chart recommendations are always based on whatever assumptions are worked into the computer program that spits out the pie chart.

Assumptions are always based on opinions. Opinions don’t ever make you money when you invest.  Conversely, opinions cost you a great deal of company retirement plan account principal when the stock market is supposed to “go up over the long term.”

How many of the “buying opportunity” columns have you read in the financial media so far in 2012?  How many pundits have talked about the stock market being “the place to be now” on CNBC?

Instead of opinions, investment management decisions need to be based on real facts.    

When the economic and stock market cycles change, your investment management decisions need to change too. That simple, common sense fact would be new information to the computer that spits out the pie charts provided to you in your company retirement plan account.

When the economy and stock market went into recession in early 2008, the pie charts never alerted you to those changes. The reason is that as usual, the pie charts were too busy focusing on what should have happened instead of what is actually happening.

Forget the pie chart when making investment management decision in your company 401(k) retirement plan account.  Instead, focus on what is happening now.

Ric Lager
Lager & Company, Inc.

This post is contributed by a community member. The views expressed in this blog are those of the author and do not necessarily reflect those of Patch Media Corporation. Everyone is welcome to submit a post to Patch. If you'd like to post a blog, go here to get started.

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