by amber on Mar 22, 2019
Have you filled out your brackets?
This past Sunday, the NCAA selection committee announced the field for the 2019 NCAA men’s basketball tournament. “March Madness” has begun!
For those of you familiar with this you know that the tournament begins with 64 teams (excluding the four “play-in” games). They are divided among 4 regions; East, South, West and Midwest and will culminate with the championship game on April 8th. So there are 16 teams playing in each region and they are “seeded” 1 – 16. The NCAA does this to make sure that the strongest teams do not meet each other too early in the tournament. Of course this to keep the television ratings up.
A team with a high seed or ranking is the stronger team based upon qualitative and quantitative evaluation. While past performance has certainly not guaranteed future success for all of the high-seeded teams, it is certainly a good starting point for the average fan’s tournament bracket picks.
Take a look at the chart below that was compiled by CBS Sports and ESPN I. I came across this in an article from NASDAQ Dorsey Wright. It is a 34 year history of how NCAA Men’s College Basketball teams have performed in the Tournament based on how they were seeded. As you can see, the higher the seeding, the better the performance.
The top-seeded teams historically win about 80% of the games they play. While the 13 – 16 seeds combine to win just roughly 11% of the games they play. And the National Title has been won by by a team with a #4 seed or higher in 31 out of the 34 years!
The NCAA men’s basketball tournament brackets are a perfect analogy to use in selecting your company 401(k) retirement plan mutual funds.
Each mutual fund on your default company 401(k) retirement plan menu can be seeded by investment performance. In technical analysis terms, the process of investment performance ranking usually involves relative strength.
Any mutual fund relative strength ranking calculation includes investment performance of a mutual fund versus the overall stock market benchmarks. Another part of the calculation is investment performance versus peer group mutual funds.
One of the most important criteria for selecting mutual funds for your 401(k) is the relative strength ranking of the funds available in your plan.
The top-ranked funds in your 401(k) retirement plan menu will offer you the best probability of short and long-term investment success. Much like a high seeded team is more likely to perform well than a low seeded team. The relative strength ranking answers the question of what to buy. Past performance does not guarantee future results.
You may want to reconsider ownership of the lower-seeded mutual funds in your company 401k. An independent, third-party investment advisor can easily provide you with the current ranking information on the top seeded funds to own. If you don’t have access to an investment advisor who can provide you with an independent ranking of your current 401(k) mutual funds, maybe I can help.
Enjoy “March Madness”!