Automation is coming fast to seemingly every aspect of our lives. Soon you may theoretically never have to leave your home for food, gas, healthcare, you name it. While we don’t advocate a sedentary life, financial automation services can be a great relief to those who want to worry less about whether they’re managing their retirement goals correctly. Most people just don’t think about compound interest on a daily basis, and that’s OK with the right help. Hence, there are now a slew of robo investment services available.
Why us? Sigma401k offers the first and only fully automated service of active portfolio management, based on proven investment methods. Most robo services will either only offer advice, leaving you to the task, or be automated but simply rebalance your account. No risk management. No factor-based asset selection. We are a bit miffed about some of these paid services – Not only do we do this as part of the service, but most 401k providers have, or will have rebalancing options already built in to your account!
We charge a flat 0.35% annual fee, billed monthly, on all accounts based on start of year balances. So if your account was worth $100,000 on January 1st, our annual fee that year would be $350. This is lower than any actively managed account you’ll find, and lower than many passive robo accounts too, which usually range between 0.35%-0.75% annually.
A retirement account, including investment balances and other investment options, is the client’s (your) information. A client can pass this information to anyone, such as a spouse, accountant or investment manager. Once a client provides Sigma401k with online access to their retirement account our highly secure application will examine all funds available to you. We match these to our database, which includes additional fund characteristics and return data provided by Morningstar. We use monthly performance data for use in back tested hypothetical performance illustrations and investment decisions.
A mutual fund is simply a collection of stocks chosen by the fund’s manager. Managers choose and weight stocks in the fund to track a particular strategy (value stocks), track an industry (energy companies), or track a style (i.e. small companies). There are benchmark funds for each category called indexes, which attempt to capture the overall sector/style/region performance. Indexes provide the baseline in which mutual funds, ETFs and other funds compare themselves to. Fund managers can deviate significantly from their respective baselines in attempts to outperform the index. Deviations are based of intensive research about companies’ ‘fundamental’ value. The more frequent the attempts to deviate and outperform, the more ‘active’ the fund.
Active management in portfolios generally takes a broader approach to tracking investment opportunities and makes risk management a top priority. While some high end strategies build portfolios with dozens of individual stocks, Sigma401k strategies use mutual funds and ETFs in your 401(k) account based on their relative performance. This ensures relatively simple implementation, and maximum diversification can be achieved with as little as two or three funds.
Yes but that’s not really the right question and honestly, we are agnostic in the Active vs. Index mutual fund debate. What we are a proponent of is active portfolio management - more specifically dynamic asset allocation. Not if the fund manager for a certain mutual fund is using an index to base their individual stock selection VS the fund having a team of technical analysts performing security selection and trying to add value.
We are well aware that many people say “the majority of active fund managers cannot or do not historically beat their index counter parts”. Almost by definition, at least half of active funds will underperform their index, which is essentially the average, in any given year. Over many years, very few active funds can keep up but many are still worth considering.
More than likely Sigma401k will select some mutual funds in your plan that are index based and some that may be actively managed. In any case, we would hope most retirement plan investment committees take suitable time to help review a plan’s investment options, removing any fund that consistently underperforms their respective index.
Our strategy is not a “get rich quick” concept. This is about long term (5, 10, 20+ year) results. It requires taking action when it may not feel right, or not acting when it REALLY feels right. We understand that money can be a highly emotional topic. But emotion and instinct can lead to decisions that wreck a portfolio. It requires discipline, a steady hand, and a tough stomach through good and bad times. We can’t think of a better way to manage our emotions than by taking it more or less entirely out of the equation.
We don’t advertise out-performance and never guarantee returns. Indexes can and will outperform our models at times. Yes, the more aggressive versions of our strategy are designed to add modest additional growth through asset class selection. Moreover, using trend to manage risk, used in all models, may help reduce bigger losses to preserve portfolio value. This is where we hope to achieve outperformance. As we’ve said before, winning by not losing can be an effective strategy.
No one does, and we are not attempting to predict any single event, or group of events. However, historical data tells us that periods of high volatility can persist - they tend to cluster together. In other words, big loss market days can be followed by big gain days, and back again, etc. This is similar with periods of low volatility – calm begets calm. We take the intermediate to longer term view of these results, attempting to reduce high volatility exposure periods, while riding most of the bull market runs.
There’s no guarantee of future results, but on net, we aim to come out doing better of course.
Great! Consider yourself adept with finances, gather the data and track the models. Consider it time well spent, and enjoy the ride. Personally, we change our own car’s oil, mow our lawns, grow our own vegetables, render our butter, do our taxes, and one of us may teach my kids linear algebra later on. Why would anyone pay for those things?
Hypothetical performance can be useful and informative, but misleading if not put in the right context. There has been a great deal of scrutiny when it comes to marketing practices and the subsequent abuse of some irresponsible firms in our industry. Indiscretions have included advisors not clearly and prominently disclosing that performance was hypothetical and not actual, as well as misleading what the results from hypothetical illustrations could or should imply to their clients. We do not fall into that category and strongly believe hypotheticals are vital in illustrating the potential risks and benefits of Sigma40k’s investment strategies to our prospective clients.
Sigma401k can manage as many retirement accounts as you would like. The flat 0.35% annual fee is billed on all accounts. So if your account was worth 3 accounts worth $100,000 on January 1st, our annual fee would still be $350 total. This is lower than any actively managed account you’ll find, and lower than many passive robo accounts too.
However, many 401(k) and retirement accounts have additional fees that may not add value if you are no longer an active participant. Sigma401k can help you review these costs and see if rolling your 401(k) or other account into an Individual Retirement Account, IRA, with Sigma401k would be less expense.
Generally speaking, most companies do have slightly different investment menus, with some differences in the funds they use to represent the different investment options. Fortunately, investment options across all plans can be categorized into something called an “asset class”. Asset classes describe the common feature of a group of companies bundled in mutual funds, ETFs, etc. Examples are large caps (think S&P 500 companies), value funds (i.e. companies with low share prices relative to their earnings), small cap funds (companies not large enough for the S&P 500), internationally based company funds, technology firm funds, and so on. All the funds that invest in those categories are usually benchmarked to an index. Indexes offer the best "snapshot" of asset class performance. Individual funds within these asset classes vary in performance around their index for various reasons .
Sigma401k tracks the most common asset class indexes for use in our strategy. While there are approximately 40,000 mutual funds and ETFs trading today, any of which may be in your 401k, our application matches index performance to the appropriate investment options you have available in your plan. If you have more than one fund in an asset class to choose from, our algorithm also selects the best available using a 12 point criteria to score and determine which option is most suitable for the next quarter (discussed in more detail here ). If there are no corresponding options for a particular asset class, don’t worry, the strategy works with as little as one S&P 500 index fund combined with one standard bond fund, which are available in just about every plan.