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Categorizing Investment Options
By Jeffrey Coons; PhD, CFA
By Christopher J. Cummings; CFA, CFP™
This white-paper will examine several different ways of categorizing investment options and discuss their usefulness in an average healthcare participant’s efforts to build a long-term investment program with an appropriate risk/return trade-off. We will specifically examine the problems associated with manager style classifications (e.g., “growth” versus “value” or “growth & income” versus “growth”, etc.), with the general conclusion that style categories fail to pass the test of the four basic questions listed below.
Paper Excerpt
“The goal of designing a participant-directed investment menu should be to provide enough diversification of roles to allow participants, physician-executives and trustees to make an appropriate trade-off between risk and return, without having so many roles as to create participant confusion. Ultimately, the burden on plan fiduciaries to adequately educate employees is largely driven by the investment decisions we require them to make in the plan, with more choices necessitating a greater understanding of the fundamental differences between and appropriate role for each choice.”
Option Menu Selection
The logical questions that arise when selecting options on a menu are:
1. Are there clear differences among the options?
2. Are these characteristics inherent to the option or potentially fleeting?
3. Are the differences among options easily communicated to and understood by the typical health investing plan participant?
Assessment
Most importantly, if healthcare participants are given choice among these different options, can the decisions they make reasonably be expected to result in an appropriate long-term investment program?
Read it here: value-or-growth
Conclusions
Your thoughts and comments are appreciated; do we even need a menu selection during this economc meltdown?
Speaker: If you need a moderator or speaker for an upcoming event, Dr. David E. Marcinko; MBA – Publisher-in-Chief of the Executive-Post – is available for seminar or speaking engagements. Contact: MarcinkoAdvisors@msn.com or Bio: www.stpub.com/pubs/authors/MARCINKO.htm
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Filed under: Investing, Retirement and Benefits | Tagged: Participant-Directed Investment Menus | Leave a comment »
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