3/22/13 3:28 PM – Why do so Few 401ks Offer Sufficient Fixed Income and Alternatives Choices?

One of the chief failings in investment choices in retirement plans is the lack of fixed income choices. Why it is that companies offer 18 different stock funds and 1 or 2 income funds is beyond me.

Generally, there is an intermediate-term bond fund like PIMCO Total Return, maybe a second fund of the same type but different company, and if you’re really lucky, a high yield or strategic income fund. As we think about strategy for when interest rates begin to rise, this menu is not enough. It is also doubtful whether this meets the needs of older participants.

Companies need to think about offering a floating rate fund and a short-duration fund along with a strategic income fund and an intermediate-term fund at a bare minimum. Thought should also be given to a fund that will invest at least some of its income assets overseas, like the Loomis Sayles Bond Fund, for example. There are also some specialty income funds that have held up well in what few bond bear markets we have had in recent years.

Alternatives is another area that consideration needs to given to, especially low volatility funds like long-short funds or arbitrage funds. I know their commonly high expenses is a turnoff, but really, investors need choices beyond just a bunch of stock funds with an income fund or two thrown in as the only alternatives.