Some Professional Investors Beat The Stock Market Indexes

You’re exposed to a lot of discussion about how the average mutual fund or money manager underperforms selected stock indexes. But not many people are aware that over the years, studies demonstrated that the averaged defined benefit pension plan earns higher returns than the average 401(k) account. Here’s one discussion of that. One way to take advantage of this information is to consider how defined benefit pension plans are investing their money. You can’t invest in hedge funds and private equity funds, but you can match most of a fund’s asset allocation. Having better asset allocation is the most likely step to improve your investment returns.

The study also found that bigger pension funds beat smaller ones, and that participants in large 401(k)s did better than participants in small plans.

The takeaway? If you leave a large company, you might want to leave your money in the 401(k) plan instead of rolling it into an individual retirement account, suggests Dave Suchsland, a senior consulting actuary with Towers Watson. You still can’t take the kinds of risks a large pension fund might, but you can take advantage of better deals on mutual funds.