Qualcomm Modern Company with Old Style Retirement Plan

10/19/2010 Share 0 comments

Retirement investing is an integral part of American personal finance. With $8.9 trillion in over 800 thousand retirement plans, millions of Americans rely on their 401K for their retirement. This article is part of a series of case studies we are conducting for various 401K plans. In this article, we will discuss how participants in Qualcomm 401(k) Plan can achieve reasonable investment results using asset allocation strategies. We will also discuss how those portfolios are positioned in today’s market environment.

Qualcomm is a 2009 FORTUNE 500® company delivering digital wireless communications products and services based on CDMA and other technologies. Qualcomm serves the global wireless industry enabling the convergence of mobile communications and consumer electronics, making next-generation wireless devices and services more personal, affordable and accessible to people everywhere.

Qualcomm 401(k) Plan's 401K plan consists of 13 funds. These funds enable participants to gain exposure to 3 major assets: US Equity , Fixed Income , Foreign Equity . 

For a modern company, three asset classes is rather old style. As we have seen in a previous article five and six asset classes outperform three asset class portfolios. Having said that, each class has a good set of alternatives allowing smart fund selection to maximize the returns of the portfolio.

The list of minor asset classes covered:

Foreign Large Blend: EFA , VEU , GWL , PFA 
Intermediate Government: IEI , VGIT , ITE 
Intermediate-Term Bond: AGG,CIU , BIV,BND 
LARGE BLEND: IVV,IYY,IWV , VTI,VV , SPY , DLN , RSP , SCHX 
LARGE GROWTH: IVW,IWZ,JKE , VUG , ELG , QQQQ , RPG , SCHG 
LARGE VALUE: IVE,IWW,JKF , VTV , ELV , PWV , RPV , SCHV 
MID-CAP BLEND: IJH,IWR,JKG , VO , MDY,EMM , PJG , DON,EZM , MVV 
Retirement Income: 
Small Growth: IJT,IWO,JKK , VBK , DSG , PWT , RZG , UKK 
SMALL VALUE: IJS,IWN,JKL , VBR , DSV , PWY , RZV , UVT 
WORLD STOCK: IOO , VT 

As of Oct 15, 2010, this plan investment choice is rated as above average based on MyPlanIQ Plan Rating methodology that was designed to measure how effective a plan's available investment funds are . It has the following detailed ratings:

Diversification -- Rated as below average (31%) 
Fund Quality -- Rated as great (87%) 
Portfolio Building -- Rated as great (91%) 
Overall Rating: above average (72%)

The chart and table below show the historical performance of moderate model portfolios employing strategic and tactical asset allocation strategies ( SAA andTAA , both provided by MyPlanIQ). For comparison purpose, we also include the moderate model portfolios of a typical five asset SIB (Simpler Is Better) plan . This SIB plan has the following candidate index funds and their ETFs equivalent:

Fixed Income:( AGG or BND ) 
Foreign Equity:( EFA or VEU ) 
US Equity:( SPY or VTI ) 
Performance chart (as of Oct 15, 2010)

Performance table (as of Oct 15, 2010)

It is unusual for a strategic asset allocation strategy to beat a tactical asset allocation strategy. In this case, the QCOM strategic asset allocation has better returns thatthe three core SIB tactical asset allocation.

This shows the benefit of having multiple funds in a single class as this allows the participant to rotate in sub classes that are performing well. Currently, asset classes in Fixed Income( AGG , BND ) , Foreign Equity( EFA , VEU ) and US Equity( SPY , VTI ) are doing relatively well. These asset classes are available to Qualcomm 401(k) Plan participants.

To summarize, Qualcomm 401(k) Plan plan participants can achieve reasonable investment returns by adopting asset allocation strategies that are tailored to their risk profiles. Currently, the tactical asset allocation strategy indicates overweighing on fixed income , us equity and foreign equity funds.

If Qualcomm were to add another two asset classes, they would have a very strong retirement plan.

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