 |
Vanguard ETF: |  |
7.4%* |
|
Diversified Core: | |
8.1%* |
|
Six Core Asset ETFs: | |
7.3%* |
Articles on SPX
- Portfolio Management: Best of Fixed Income Managers vs. Retirement Income ETFs
09/08/2011
Two defensive investment strategies useful in current stressful times are compared. The first is based on selecting the best bond fund every month or every quarter from a list of bond funds managed by Morningstar's 'Manager of the Year' P Bond Funds Momentum Based on Upgrading Fixed Income Managers of the Year`s Funds Monthly. These funds include PTTRX, TGLMX, WATFX, MWTRX, LSBDX, DODIX, FPNIX.
The second is Retirement Income ETFs that consists of a list of candidate dividend stock and bond ETFs including DVY, EMB, HYG, ICF, IDV, TIP, VIG, VWO.
The conclusion: the Fixed Income Managers of the Year is solid and has lower volatility, a good defensive strategy one should consider. Both of them are better alternatives than a broad based index such as S&P 500 (SPX) or total bond market index (AGG)
Read more from our SeekingAlpha's article:
Defensive Strategies In Stressful Times: The Best Of Fixed Income
Symbols: SPX, DVY, EMB, HYG, ICF, IDV, TIP, VIG, VWO, PTTRX, TGLMX, WATFX, MWTRX, LSBDX, DODIX, FPNIX, Retirement Investing, Dividend Stock, Retirement Income, Portfolio Management
- 401K Investments: Facebook 401K Plan Reviewed
09/08/2011
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.
Asset Class Ticker Name LARGE BLEND NBSRX Neuberger Berman Socially Resp Inv LARGE GROWTH NMTAX Columbia Marsico 21st Century A LARGE GROWTH PIGFX Pioneer Fundamental Growth A LARGE BLEND PRGIX T. Rowe Price Growth & Income LARGE VALUE MDDVX BlackRock Equity Dividend A Small Growth PGSGX JPMorgan Small Cap Growth A LARGE BLEND OGEAX JPMorgan Equity Index A MID-CAP BLEND OMEAX JPMorgan Market Expansion Index A Mid-Cap Growth LACAX Columbia Acorn A Intermediate-Term Bond PTRRX PIMCO Total Return R REAL ESTATE IARAX AIM Real Estate A MID-CAP VALUE CMVIX BlackRock Mid-Cap Value Equity Instl Foreign Large Growth JIGRX Janus Overseas S ROOT CASH CASH Target Date 2000-2010 FACFX Fidelity Advisor Freedom 2010 A LARGE GROWTH FNIAX Fidelity Advisor New Insights A Target Date 2000-2010 FFAVX Fidelity Advisor Freedom 2005 A Target Date 2000-2010 FACFX Fidelity Advisor Freedom 2010 A Target Date 2011-2015 FFVAX Fidelity Advisor Freedom 2015 A Target Date 2016-2020 FDAFX Fidelity Advisor Freedom 2020 A Target Date 2021-2025 FATWX Fidelity Advisor Freedom 2025 A Target Date 2026-2030 FAFEX Fidelity Advisor Freedom 2030 A Target Date 2031-2035 FATHX Fidelity Advisor Freedom 2035 A Target Date 2036-2040 FAFFX Fidelity Advisor Freedom 2040 A Target Date 2041-2045 FFFZX Fidelity Advisor Freedom 2045 A Target Date 2050+ FFFLX Fidelity Advisor Freedom 2050 A NotFound NotFound NotFound 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.
Assets Class Symbols 09/07
Trend
Score08/31
Trend
ScoreDirection Gold GLD 18.12% 21.04% v Commodities DBC 6.68% 7.67% v Intermediate Treasuries IEF 6.67% 6.1% ^ Emerging Mkt Bonds PCY 3.76% 3.1% ^ US Equity REITs VNQ 3.6% 3.21% ^ International Treasury Bonds BWX 3.32% 4.3% v US Credit Bonds CFT 3.01% 2.34% ^ Total US Bonds BND 2.69% 2.67% ^ Municipal Bonds MUB 2.57% 3.85% v Mortgage Back Bonds MBB 2.02% 2.29% v US High Yield Bonds JNK 0.96% 1.55% v US Stocks VTI 0.68% 0.61% ^ International REITs RWX 0.28% 0.96% v Treasury Bills SHV 0.02% 0.03% v Emerging Market Stks VWO -0.66% -1.51% ^ Frontier Market Stks FRN -0.79% -0.44% v International Developed Stks EFA -4.99% -3.33% v 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)
Portfolio Name 1Yr AR 1Yr Sharpe 3Yr AR 3Yr Sharpe 5Yr AR 5Yr Sharpe Facebook 401k Tactical Asset Allocation Moderate 6% 56% 11% 100% 11% 93% Facebook 401k Strategic Asset Allocation Moderate 4% 22% 5% 22% 5% 23% Four Core Asset Index Funds REITs Tactical Asset Allocation Moderate 8% 75% 9% 81% 8% 70% Four Core Asset Index Funds REITs Strategic Asset Allocation Moderate 7% 44% 4% 18% 4% 13% 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.
Symbols: SPX, PTTRX, COMP, SPY, VTI, BDN, AGG, IYR, 401K Investments, Retirement Investing, Portfolio Management, Asset Allocation, Risk Management
- Neither Rationale for Social Security is Working
09/02/2011
August 29, 2011
Social Security has been called the third rail of politics. Good thing I’m not a politician. Someone has to make the tough decisions.
I was on the radio recently when a conservative listener called in and expressed the opinion of many on both sides of the aisle.
He said (and I’m paraphrasing), “I was forced by law to pay into Social Security and I want back at least what I paid in plus a little interest. The bottom line, which sounds selfish, is that if I had to pay it, I want it back.
“If they give me a tax credit for the rest of my life starting right now for the amount I paid in, I will go with that. Or a means test where if you make a whole lot of money you don’t get it. But if I’m forced to pay something in, I want my money back.”
Here was my answer. “I’m sure you, like most Americans, have two parents and four grandparents, and there are the six people who have received what you paid in. So at least it has gone to your family members.
“The real question is whether we want to make our children and grandchildren pay into our system. Because the money just isn’t there. And if anyone says it is, why did we need to raise the debt ceiling?
“If the money is there, you ought to be able to pay everything with current revenue and not raise the debt ceiling. You can’t both argue to raise the debt ceiling and then say the money is there.
“If it is any consolation, just say, ‘We are not going to hold a gun to our children’s and grandchildren’s heads and force them to endure what we did.’ Two wrongs don’t make a right.”
I went on to mention Thomas Sowell’s article “The Missing Money,” which concludes, “Since the law does not allow private pension plans to be set up in the financially irresponsible way Social Security is, that is where young people’s money should be put if they ever want to see that money again when they reach retirement age.”
There are two different ways to think about Social Security. One is as a forced retirement savings. This was clearly how the legislation was marketed politically and gained its initial political support.
Even the legal exemptions today are based on this idea. The Amish are exempt by claiming Social Security is an insurance premium that opposes their belief that families should take care of their elderly. Unfortunately, this option is not available for other objectors.
A second way to think about Social Security is a redistribution tax from the working young to the retired elderly or disabled. This is clearly how current government cash flows operate.
Americans do not divide neatly into endorsing one of these two perspectives. Most people vacillate between the two, which is understandable. Both perspectives are faulty. Neither one can be defended. And the easiest way to criticize one is by adopting the alternative perspective.
Despite all the aspiration and good intentions of Social Security legislation, the actual achievements from either perspective have been a failure. Fiscal liberals assume that libertarians are greedy and heartless when what we really want is to move beyond good intentions and have programs that actually work. Social Security–from either perspective–hasn’t worked.
If we totally endorsed Social Security as a way to force retirement savings, we would privatize the system. Most liberals are vehemently opposed to this idea. They generally hate putting money into Wall Street and assume that investment managers like me are just trying to increase business.
The mistrust of Wall Street is nearly unanimous on the left. They seem to conceive Wall Street as some faceless corporate force that makes money off the misfortune of others. But in reality, the trading on Wall Street is people just like you and me deciding if we would rather buy or sell at the prices offered every day. Every day the stock market drops, it is because more of us are selling than buying.
Most on the left also mistakenly believe that money put into a privatized system would be more at risk and in danger of producing a lower return than Social Security. No amount of looking at the facts seems to dissuade these liberals from their misconceptions.
If people retiring today at age 66 had begun contributing to their private retirement account in 1966 at age 21, their annualized return would be 9.58%. During that time the S&P 500 went from 86 to 1325. They could have earned an additional 3.31% from dividend reinvestment. Any 45-year investment horizon would have done better in the markets than the return of Social Security.
In contrast, the so-called return on our investment in Social Security has been abysmal. Several calculators can approximate the equivalent Social Security return. The average real return is barely positive. Mine is severely negative.
Single black men have the worst possible return. All of their earnings are subject to Social Security tax, and they have the shortest life expectancy. Coupled with the fact that no one can inherit their benefits, their rate of return is the worst possible.
White women who have never worked experience an infinite return. Although they have not contributed personally to Social Security, they receive a spousal benefit at retirement age and inherit their husband’s full amount if he predeceases her.
Married couples with two incomes often increase their contribution to Social Security without any corresponding increase in their benefits. This marriage penalty only applies to dual-income families. Otherwise there is a benefit to being married because the survivor can continue to collect the spouse’s full Social Security.
Half of Americans pay zero federal income tax, but they often pay 12.4% Social Security and 2.9% Medicare for a total tax of 15.3% of their income. Low-income workers qualify for an earned income tax credit specifically designed to offset the burden of Social Security taxes and provide an incentive to work. But for most lower income workers, this tax impoverishes them.
Private accounts would provide the potential for inheritance. Children living in poverty with a single mother could inherit their fathers’ accounts if they died. Lower income families could build wealth lasting more than one generation. Instead, we force each generation to rely on a government handout for their savings plan. And this return is negative.
A study by William Beach and Gareth Davis computed the cumulative effects of Social Security’s dismal returns. Imagine a community the size of Charlottesville, Virginia, of 44,000 young married double-earner couples in their 30s with each person earning the average wage and each couple having two children. That community loses $23 billion by receiving Social Security rather than what they could have saved in a private pension plan by retirement age using the same dollars.
Taxes matter. And flowing workers’ retirement savings through the spendthrift irresponsible bureaucracy of the federal government is worse than anything they could have experienced in private accounts invested in the stock market.
- Advisors Turning to Alternative Investments: What ETFs Can You Use?
08/30/2011
Indexuniverse.com reports the following:
"Alternative investments, including hedge fund strategies, are becoming more popular, as many advisors turn to off-the-beaten-path vehicles for everything from portfolio diversification to risk management to generate returns, a study from Cambridge, Mass.-based Cogent Research showed.
To date, nearly 80 percent of all retail advisors interviewed in the survey rely on alternative strategies within client portfolios, allocating on average 11 percent of their book to such strategies. Apart from hedge funds, alternative investment strategies include venture capital, private equity, limited partnerships and structured products and notes.
Of all those making use of alternative investment strategies, more than 40 percent of them will increase their use of ETFs in the next 12 months. Comparative data weren’t available, as this is the first time Cogent addressed the use of alternatives."
Read more on
Advisors Turning To Alternative Investments
For investors who have IRAs and taxable accounts, they can access to ETFs easily these days. While we certainly do not suggest average investors to venture into venture capital, private equity and other illiquid asset classes, some of hedge fund style ETFs can be useful for asset allocation purpose. Furthermore, our Tactical Asset Allocation(TAA) strategy can be classified as an alternative investment strategy (it depends on whether one would throw anything non-conventional Tactical Asset Allocation(TAA) into the 'alternative' bucket).
We should also point out that many people consider Real Estate Investment Trusts (REITs such as IYR, VNQ), Gold (GLD, IAU), Silver (SLV) or commodities (DBC, GSG) as alternative investments.
Considering recent market and economic environments, these ETFs or strategies are playing an important roles in retirement investing for diversification and risk management purposes. In fact, many of these strategies or portfolios have done a good job to hedge against general stock market (S&P 500 SPX, Nasdaq COMP) downturns.
We have published several research articles on alternative ETFs:
Managed Futures ETFs Are Useful Portfolio Diversifiers
6 Hedge Fund ETFs for Average Investors
Commodity Investing: Long/Short (S&P Commodity Trend Indicators) vs. Long-Only
Or these portfolios:
Permanent Global Portfolio ETF Plan
MyPlanIQ Diversified Core Allocation ETF Plan
Symbols: SPX, COMP, IYR, VNQ, GLD, IAU, SLV, DBC, GSG, Portfolio Strategy & Asset Allocation
- 3 Ways to Manage Your Portfolios to Cope with World Wide Food Inflation
08/26/2011
The Google map from www.econmatters.com shows how serious the world wide food crisis has become.
Legends:
Fist = Overthrown Governments
Flames = Actual food / inflation riots
Police = Protests / other riots
$ = Price increase announcements / Price Controls / Stock market issues
! = Strike in inflation / food related industries
Phone = Internet/ Twitter /shutdownView Inflation Riots and Protests 2011 in a larger map
With global government monetary policies to stimulate economies and U.S. dollar devaluation, the problem can only become worse.For a retirement investiment account such as 401K, IRA or a retiree's portfolio, here are 3 ways to fortify your portfolios:- Consider having some exposure in commodities. This can be achieved by broad base commodity index ETFs or mutual funds such as PowerShares Commodity Index ETF (DBC). You can even go more specific to have some exposure in agriculture commodities by using Powershares agriculture ETF (DBA). Both of these ETFs have been relatively stable recently, even in a serious stock market stress (S&P 500 SPX down 6% year to date).
- Consider exposures in foreign currencies. The safest way is through U.S. dollar bearish ETFs such as UDN (U.S. dollar down) or some individual currency ETFs such as CurrencyShares Australia dollar (FXA) or Canadian dollar (FXC).
- Consider some exposures in inflation protected bonds such as TIP or WIP (international inflation protected bond ETF). However, given recent runup on these ETFs, one should wait for a better entry point.
However how meaningful an investing theory is, one should still put this under an overall portfolio asset allocation framework. The following are some related investment portfolios/plans:Six Core Asset ETFs: it gives exposures in commodities through DBC.MyPlanIQ Diversified Core Allocation ETF Plan: diversified portfolios allow exposures in commodities, gold (GLD) and TIP/WIP.Permanent Portfolio ETF Plan: Permanent portfolios that have exposures in gold, silver (SLV) and hard assets. - Why 'Buy and Hold' Strategy No Longer Works?
08/19/2011
- Military Retirement Replaced with 401k?
08/17/2011
- How Money Manager Franklin Templeton Selects Funds for Its Employee Profit Sharing 401K Plan
08/13/2011
- Does Timing Market Only Work for Pros?
08/12/2011
- 5 Steps to Take When Your Company's Pension Is Underfunded
08/09/2011
- Dividend Payout Reflects the New Reality
08/02/2011
- Low Beta Stock ETFs Tend to Out Perform
07/29/2011
- The Implication of The Unthinkable U.S. Default: How Will It Affect Safe Haven Treasury Status
07/26/2011
- More 401K Investors Want Asset Allocation Help and More Control on Their Investments
07/26/2011
- Using Asset Classes in Amerivest Guided Portfolios to Construct ETF Portfolios
07/22/2011
- Dividend Stock ETFs vs. Dividend Stock Mutual Funds
07/21/2011
- Economic Indicators Signal Overvalued Stock Markets
07/18/2011
- Economic Indicators Signal Overvalued Stock Markets
07/18/2011
- 6 Hedge Fund ETFs for Average Investors
07/17/2011
- The Goldman Sachs 401(k) Plan Report On 06/03/2011
06/03/2011
Retirement investing is a long term process. This report reviews The Goldman Sachs 401(k) Plan . We will discuss the investment choices and present the plan rating by MyPlanIQ. Current economic and market conditions are discussed in the context of the investment portfolios in the plan. We will then show how investors in The Goldman Sachs 401(k) Plan can achieve reasonable investment results using asset allocation strategies.
Plan Review and Rating
As one of the largest investment banks in the world, Goldman Sachs (GS) does give its employees ample diversification opportunities. The plan consists of 36 funds. These funds enable participants to gain exposure to 6 major assets: US Equity, Foreign Equity, Commodity, Emerging Market Equity, REITs, Fixed Income.
As of Jun 2, 2011, this plan investment choice is rated as 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 great (100%)
Fund Quality -- Rated as below average (14%)
Portfolio Building -- Rated as average (52%)
Overall Rating: average (55%)It is a bit surprising that the plan's fund quality is rated below average. In the plan, other than the low cost index funds, it provides many Goldman Sachs funds such as Goldman Sachs Asset Management L.P./Structured US Equity Fund (GSELX). This could possibly help your own fund business with the expense of lower qualities. We don't know what cost the plan is charged for these funds.
Current Economic and Market Conditions
As we are clearly entering a seasonally weak period for risk assets, global economies have clearly slowed down. Recently released Case-Shiller housing index showed that the U.S. is now in a double dip state for housing prices. Unemployment rate has been stuck at 9% level. Additional indicators such as conference board consumer confidence index and Chicago ISM index are all pointing to a slow down in the summer season.
Amid a string of bad economic news, risk assets have come down a bit, though they are still ranked high at the moment. Long term treasury bonds, however, have shot up in the anticipation of weakened economy. The following table shows the major asset class ranking in terms of their momentum.
Assets Class Symbols 05/27
Trend
Score05/20
Trend
ScoreDirection International REITs RWX 11.77% 10.82% ^ Commodities DBC 10.84% 10.32% ^ US Equity REITs VNQ 10.77% 10.41% ^ Gold GLD 9.42% 10.06% v Emerging Market Stks VWO 8.56% 6.72% ^ US Stocks VTI 8.29% 8.23% ^ International Developed Stks EFA 6.77% 5.23% ^ US High Yield Bonds JNK 6.37% 6.37% v International Treasury Bonds BWX 5.96% 4.66% ^ Frontier Market Stks FRN 4.05% 4.27% v Emerging Mkt Bonds PCY 3.57% 4.27% v Intermediate Treasuries IEF 2.71% 2.39% ^ US Credit Bonds CFT 2.5% 2.81% v Municipal Bonds MUB 2.13% 2.0% ^ Total US Bonds BND 1.99% 1.92% ^ Mortgage Back Bonds MBB 1.75% 1.8% v Treasury Bills SHV 0.07% 0.02% ^ 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 6 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
Commodity: DBC
Emerging Market Equity: EEM or VWO
REITs: IYR or VNQ or ICF
Fixed Income: AGG or BND
Performance chart (as of Jun 2, 2011)Performance table (as of Jun 2, 2011)
Portfolio Name 1Yr AR 1Yr Sharpe 3Yr AR 3Yr Sharpe 5Yr AR 5Yr Sharpe The Goldman Sachs 401(k) Plan Tactical Asset Allocation Moderate 12% 113% 9% 70% 13% 98% The Goldman Sachs 401(k) Plan Strategic Asset Allocation Moderate 17% 214% 1% 5% 5% 30% Six Core Asset ETF Benchmark Tactical Asset Allocation Moderate 14% 141% 8% 64% 13% 92% Six Core Asset ETF Benchmark Strategic Asset Allocation Moderate 20% 188% 3% 16% 7% 36% From the above table, one can see that the plan is comparable with six core asset benchmark.
To summarize, participants in The Goldman Sachs 401(k) Plan can achieve very reasonable investment returns by adopting asset allocation strategies that are tailored to their risk profiles. This plan provides adquate diversification but can be improved by working on fund qualities.
Symbols:GS, ^RUT, MLM, VTI, VEU, VWO, VNQ, DBC, BND, STLEX, SVSPX, VUSTX, VIGIX, VIVIX, VIMSX, SSEMX, VIPSX, STLAX, STLBX, WFBIX, STLCX, STLDX, STLFX, GMCFX, GSTGX, WACPX, GSELX, GCMAX, GSHTX, GSCGX, GSLAX, GSFIX, GGOIX, GREIX, QRAAX, PIGLX, SVRIX
Exchange Tickers: (GS), (^RUT), (CASH), (MLM), (VTI), (VEU), (VWO), (VNQ), (DBC), (BND), (STLEX), (SVSPX), (VUSTX), (VIGIX), (VIVIX), (VIMSX), (SSEMX), (VIPSX), (STLAX), (STLBX), (WFBIX), (STLCX), (STLDX), (STLFX), (GMCFX), (GSTGX), (WACPX), (GSELX), (GCMAX), (GSHTX), (GSCGX), (GSLAX), (GSFIX), (GGOIX), (GREIX), (QRAAX), (PIGLX), (SVRIX)