What are the Best Tips for Pension Fund Management?

Ron Davis

The best pension fund management tip is that the investor should pay himself or herself first. When managing a pension fund, he or she should also avoid paying more than is necessary in pension fund management fees. It is also important that fund be diversified to help improve the chances that it will be profitable.

Stock selection can be a time-consuming endeavor.
Stock selection can be a time-consuming endeavor.

Each pay period, a person should contribute 10% of his or her income to a retirement program. This may mean he or she needs to cut back on entertainment or make other sacrifices, but it is important that the 10% is added to the retirement account. By contributing to the pension plan every pay period, the person gets the greatest benefit from compound interest.

In the United States, both Roth and traditional IRAs offer substantial tax benefits. Many institutions charge set-up fees and/or administrative fees for these pension fund management vehicles, however. If an individual chooses a self-directed IRA and plans to invest either in stocks or futures trading, he or she should look for a broker who has both low commissions and low administrative fees.

When investing in the stock market, the investor can select stocks himself or he can buy a market fund. Stock selection can be a time-consuming endeavor. A financial newsletter rating service may be of help. From the best rated newsletters, the investor can choose one in each of three to five financial sectors, and follow those stock selections.

Many who confront pension fund management elect to accept the overall stock market return each year by using a market fund. Two primary ways to buy a market fund are to buy into a mutual fund or buy electronically traded funds (ETFs). The difference in fees between a mutual fund and ETF can be quite high. Across 20 or 30 years, a 1% or 2% difference in rate is substantial.

Diversification improves the likelihood of a profitable pension fund. Investing in only one asset works when that one asset does well. Professionals are more likely to own a portfolio of 20 assets. Over a year, perhaps two will lose value, 16 will grow moderately, and two will make a lot of money. Those are good odds for an investor to aim for: 10% will lose money, 80% will make modest profits, and 20% will make high profits. Contrary to myth, diversification within a market does not protect against losses in that market, whether stocks, real estate, or the fine arts.

Those with a large account may want to consider diversifying across multiple markets as part of a pension fund management strategy. The person may want to invest in some stocks or ETFs, a managed commodities fund, and rental property, for example. A stock market drop will not often result in lower real estate prices, and need not ever cause a managed commodities fund to lose money. Of the three, a managed commodities fund is the riskiest, but also the most likely to be profitable during difficult economic times.

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