401K Investments: Facebook 401K Plan Reviewed

09/08/2011 Share 0 comments

Retirement investing is a long term process. This report reviews Facebook 401k plan, discusses the 401k investment options and presents the plan rating by MyPlanIQ. Asset allocation investment portfolios are examined. Current economic and market conditions are discussed in the context of the investment portfolios in the plan. We will then show how plan participants in Facebook 401k can achieve reasonable investment results using portfolio management and risk management strategies for their 401k investments.

Plan Review and Rating

Facebook is the largest social media company based in Palo Alto, California.

Facebook 401k's 401K plan consists of 27 funds. These funds enable participants to gain exposure to 4 major assets: US Equity, Foreign Equity, REITs, Fixed Income.

As of Sep 7, 2011, this plan investment choice is rated as above average based on MyPlanIQ Plan Rating methodology that measures the effectiveness of a plan's available investment funds. It has the following detailed ratings:

Diversification -- Rated as average (59%)
Fund Quality -- Rated as average (59%)
Portfolio Building -- Rated as above average (83%)
Overall Rating: above average (69%)

Current Economic and Market Conditions

The U.S. and the rest of the world face long term structural problems that it takes time to correct. The following are some of these problems:

• The consumption driven economies in developed countries and the export driven economies in emerging countries result in a one way trade flow that can only be sustained for a limited time.
• Private households in the U.S. are highly in debt, mostly due to the Federal Reserve's loose monetary policy to prop up consumption and living standards. It is impossible to make debts go away overnight without inflicting severe social and economic hardship.
• Sovereign debt is growing out of control in many countries due to years of relaxed fiscal policies and the recent stimulus driven rescue. It should be noted that this exists not only in developed countries but also in several emerging countries, noticeably in China (adding local government debt, the Chinese government debt would rival the US) and somewhat in Brazil.
• Uneven productivity and competitiveness of work forces in developed countries and emerging countries. Both productivity and competitiveness can be simply measured by return on investment (ROI), or so called 'cost effectiveness'. We can see this uneven productivity from the difference between German workers and those in peripheral European countries as well as the difference between manufacture workers in the U.S. and those in emerging countries.
• The relatively decline of K-12 education quality in the U.S., especially in science and technology, makes it more and more difficult for the country to be competitive in manufacturing and producing high tech goods.

It takes time to correct structural problems as it requires fundamental changes in policies, improvements in productive investments (such as infrastructure upgrade), a better trained current work force and a future generation that is better equipped in science and technology. All this will take time.

In such an environment, it is key to have asset allocation in place for one's retirement investment portfolios.

For more information on the trends of major asset classes, please see Asset Class Trend Watch. 

Portfolio Discussions

The chart and table below show the historical performance of moderate model portfolios employing strategic and tactical asset allocation strategies. For comparison purpose, we also include the moderate model portfolios of a typical 4 asset SIB (Simpler Is Better) plan . This SIB plan has the following candidate index funds and their ETFs equivalent:

US Equity: SPY or VTI
Foreign Equity: EFA or VEU
REITs: IYR or VNQ or ICF
Fixed Income: AGG or BND

Performance chart (as of Sep 7, 2011)

Performance table (as of Sep 7, 2011)

All model portfolios have out performed S&P 500 (VFINX, SPX) and balanced fund index (VBINX).

Currently Commodities, International Bonds and Fixed Income are doing well. Only Fixed Income is available to Facebook 401k participants. On the other hand,  REITs as an asset class is relatively strong in the current low yield environment. Facebook 401K allows REITs exposure.

To summarize, participants adopting Facebook 401k plan can achieve reasonable investment returns by adopting asset allocation strategies that are tailored to their risk profiles. Diversification and proper risk management are the two major key factors in 401k investing.

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