World leaders are making critical decisions about how to open their countries. Governors and local leaders are issuing guidelines to keep their communities safe while allowing their economies to resume. These guidelines come with new policies, such as the types of social distancing that can be relaxed, how businesses should be allowed to operate, which outdoor and social activities will be allowed to resume safely and when. Governments are extending financial stimulus to struggling individuals, families, and businesses. All the while, employers are making decisions about how to safely return to work, adapting to work-from-home protocols, and making decisions on staffing levels. Nearly every aspect of our collective personal and professional experience is settling into a new mode of operation.

All these decisions share something in common: investment speculation. Which industries will survive, which ones will thrive, and which ones will suffer in the short and long term? Investment analysts, wealth managers, fund managers, and individual investors all speculate and make investment decisions based on these ever-changing factors. This speculation will lead to some investments being overvalued while others are undervalued, leading to larger than normal swings in stock prices for individual securities and for larger benchmarks. For example, many speculate that the travel industry may take longer to recover while services that can operate online should thrive.

For those who participate as a plan fiduciary for their company’s 401(k) program expect to see investments that have lost money or slipped on their performance rating. Keep in mind that predicting the direction of markets and individual investments is extremely challenging during wild economic swings. During these times it is important to be very thoughtful when making investment decisions. Consider the history of the investment managers, their process, and long-term performance before opting to make investment changes.

Tips to Evaluate Plan Investments

  • Fund Expenses. The higher the investment’s cost, the harder to post gains, as costs eat into gains.
  • Fund Performance. Funds with a history of outperforming may give you clues into the managers’ discipline, research capabilities, and analytics. Some fund managers that outperform may significantly outperform during short periods of time and therefore may have periods of underperformance. Always research a fund’s long-term performance while keeping an eye on how the fund performed recently.
  • Manager Tenure. Can the fund’s long-term track record be attributable to the current team?
  • Risk-adjusted Return. If a fund takes a lot of risk to capture returns, the fund could be exposed in a severe or even moderate correction.
  • Volatility. Is a fund able to mitigate losses when the markets go down? Funds that lose less have a shorter path to recovery. These types of funds will tend to underperform when markets are peaking and require patient investors who will not replace these funds abruptly. 

Ways to Enhance Participant Saving Practices

  • Promote planning, guidance, and educational resources available.
  • Offer other health and welfare benefits that enhance workers’ long-term financial security and health.
  • Implement CARES Act provisions that offer financial relief to employees through access to loans and early withdrawals so continuing to save is not a hurdle to accessing funds if an emergency occurs. 

At the end of the day, much is still unknown on how the economic landscape will look after the COVID-19 recovery. Be patient with these fiduciary decisions. When it comes to evaluating the company’s 401(k) program in a thorough and thoughtful way, use your benefits advisor to help steer the program down the path to take the best care of your employees. Plan fiduciaries play a vital role in helping employees establish financial security.  

Luciano Costantini – Principal & Director of 401(k) Services at Sequoia Consulting Group, helping companies help employees save for retirement. When not training for marathons and triathlons, he can be found icing his hamstrings and quietly whimpering in pain.

Pensionmark® Financial Group, LLC (“Pensionmark”) is an investment adviser registered under the Investment Advisers Act of 1940. Pensionmark is affiliated through common ownership with Pensionmark Securities, LLC (member SIPC). Pensionmark Financial Group, LLC/Pensionmark Securities, LLC and Sequoia Consulting Group are non-affiliated entities.