Case Detail

Case Summary

Selecting Mutual Funds for Retirement Accounts (A)

Case Number: 5-118-006(A), Year Published: 2018

HBS Number: KE1056

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Authors: Phillip Braun

Key Concepts

Decision Making, Financial Instruments, Financial Management, Financial Planning, Investment Management, Mutual Funds

Abstract

Alice Monroe, a 30-year-old married mother of two, was an admissions officer at the Kellogg School of Management at Northwestern University. She was just completing her first year of service at Northwestern and qualified for the university's 403(b) retirement plan. It was early October 2017, and she had until the end of the month to decide if and to what extent she would participate in Northwestern's retirement plan--that is, how much of her salary should she put into the retirement plan, and into which mutual fund or funds should she allocate her savings?

The case includes background on defined contribution and benefit plans as well as mutual funds. It goes into detail about Northwestern's retirement plan, including data on the performance of 15 of the plan's core mutual funds. The case also provides each fund's strategy, Morningstar Rating and Morningstar Category, expense ratio, assets under management, turnover rate, and historical performance for the last 10 years.

Using modern portfolio theory (diversification and risk-return trade-off) and with an understanding of mutual fund fees and the tax advantages of retirement savings, students will decide how much Alice should invest and in which mutual funds.

Learning Objectives

Identify the relevant criteria needed to determine an investor's retirement portfolio; calculate a risk-adjusted performance measure, the Sharpe ratio, to compare and select mutual funds; calculate and analyze correlation coefficients across mutual funds to determine their diversification possibilities; select a retirement portfolio for an investor; determine the role fees play in the selection of mutual funds; and appreciate the complexities involved in selecting mutual funds.

Number of Pages: 17

Extended Case Information

Teaching Areas: Finance

Teaching Note Available: Yes

Geographic: United States

Industry: Mutual funds

Organization Name: Northwestern University

Decision Maker Position: Admissions officer

Decision Maker Gender: Female