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.

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)

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)

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04/26/2011

By John Wasik for Reuters Prism Money

Bernie Madoff’s failings are not the mark of some isolated monster, although his crimes are heinous. He is so much like every one of us that failing to recognize this fact will imperil us at every financial turn.

This is one of many revelations in Diana Henriques’s stunning new book The Wizard of Lies: Bernie Madoff and the Death of Trust.

The man who bilked $65 billion from friends, family, institutional investors and charities knew what he was doing. As far as we know, he wasn’t incapacitated from bipolar disorder, substance abuse, schizophrenia or some gargantuan chip on his shoulder to prey upon the wealthy. He stole and lied consistently to all and told Henriques he was fully aware of his mammoth deceit every step of the way.

Madoff was not a man conspiring in a bunker. He went to countless high-society parties, gave to charities and was admired by most who encountered him. Yet when he finally admitted his fraud, it was a surprise that ruined individuals and charitable foundations. His own son, trying to escape the shadow of his father’s foul deeds, committed suicide.

The scale of his crime can’t be overstated. As the serial falsifier of whole portfolios, Madoff claimed to manage twice as much money as Goldman Sachs, Henriques states.

“He was faking everything,” Henriques writes, “from customer account statements to regulatory filings, on a scale that dwarfed every other Ponzi scheme in history.”

Next to the mavens of the 2008 meltdown, Madoff may be the Stalin of Ponzi villains (there are always other scamsters out there). Yet any attempts to personify him as a three-headed hydra will miss the main point of Henriques’s masterful narrative. Here’s the clincher, which Henriques saves for page 345:

“The Madoff case demonstrated with brutal clarity another truth that we simply do not want to face about the Ponzi schemer in our midst: He is not “other” than us, or “different” from us. He is just like us — only more so.”

This chilling revelation illuminates human nature itself. We want to believe that someone like Madoff is “taking care” of us — and our money. When some negative vibe buzzes in our ear like Jiminy Cricket, we compartmentalize it in the part of our brain that is like a dead-letter file. We don’t question the reality of outlandish claims and can’t own up to our avarice.

I’ve seen so much investor denial in the past three decades of covering finance that I could spend the rest of my life writing about it. Some of it flies beneath the radar like high-yielding structured products that are loaded with risky and complex derivatives.

Most of the deception, though, lies in banal investments like variable annuities or overpriced 401(k)s. We’re fleeced every day, but may not know it because of our trust in our advisers, a brand name or simply a bold promise.

Here’s a short list of what we need to know about investing, but routinely fail to ask ourselves with any skepticism:

• If an adviser is pitching a six percent yield when most one-year certificates of deposits are returning one percent, what kinds of risks will you be taking to achieve that return? How much can you lose if the promise doesn’t pan out?
• Can the adviser beat a broad-market index like the S&P 500 on a regular basis? Most can’t. If they have a few good years, they are lucky, not skillful, and luck doesn’t last long in investing. Most lag the market averages over time after management expenses, taxes and inflation. It’s a fact of life.
• Is your principal really protected? Outside of low-yielding FDIC-insured product, you will pay dearly for any guarantees. How much will it eat into your principal? What are the commissions and internal fees?

How do we avoid the Madoffs of the world when we consistently trust people we shouldn’t and fail to ask the right questions?

Henriques suggests that we need mandatory financial education in school and be required to get a license after we are tested on basic money skills.

While I agree that everyone needs this skill set — and it should be taught beginning in middle school — I’m not sure if licensing is the way to go. Plain-language, gob-smacking tobacco-like warnings on investments that state “this is hazardous to your wealth” are another alternative, although crooks always manage a way around disclosure.

Ultimately, we need to turn off our brain’s belief and trust circuits to avoid hazardous investing. The truth is often not in our heads, but in our guts.

“That is the most enduring lesson of the Madoff scandal,” Henriques concludes, “in a world full of lies, the most dangerous ones are the ones we tell ourselves.”

Exchange Tickers: (NYSE:SPY), (NYSE:GS), (NYSE:VTI)

Symbols: SPY, VTI, GS

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12/03/2010

This report reviews ALLERGAN, INC. SAVINGS AND INVESTMENT PLAN 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 participants in ALLERGAN, INC. SAVINGS AND INVESTMENT PLAN can achieve reasonable investment results using asset allocation strategies.

Plan Review and Rating

ALLERGAN, INC. SAVINGS AND INVESTMENT PLAN's 401K plan consists of 13 funds. These funds enable participants to gain exposure to 3 major assets: US Equity, Foreign Equity, Fixed Income. The list of minor asset classes covered:

Foreign Large Blend: EFA, VEU, GWL, PFA
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
Moderate Allocation: AOM
Short Government: SHY, SHV, VGSH, PLK, USY
Small Blend: IJR, IWM, JKJ, VB, DSC, PJM, DES, SAA, UWM, SCHA
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 Dec 2, 2010, this plan investment choice is rated as 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 (21%)
Fund Quality -- Rated as (16%)
Portfolio Building -- Rated as (31%)
Overall Rating: (24%)

Current Economic and Market Conditions

We have experienced an uncertain 2010: plenty of worries on whether the US economy will climb out of the great recession and recover.

• The Federal Reserve embarked on Quantitative Easing II (QE2) to stimulate the economy.
• The housing market is still at its low but largely stabilized.
• The unemployment rate is stuck at 9%.

Americans continue to face an uncertain future, given (among others) the high unemployment rate, large federal and local government debts and global trade imbalance. With such an economic backdrop, the stock and debt markets are going to be volatile. Despite this, markets have been resilient and appear positioned to rebound.

In this market it is even more critical to properly diversify and respond market changes. MyPlanIQ offers two asset allocation strategies: strategic and tactical asset allocation strategies ( SAA and TAA for participants in ALLERGAN, INC. SAVINGS AND INVESTMENT PLAN).

Strategic Asset Allocation is based on well known modern portfolio theory and its key features include: diversification, proper fund selection and periodically re-balancing.

Tactical Asset Allocation works on a diversified array of assets provided by funds in a plan and adjusts asset mixes based on market conditions such as asset price momentum utilized by TAA.

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 3 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)
Fixed Income: (AGG or BND)

Performance chart (as of Dec 2, 2010)

Performance table (as of Dec 2, 2010)

Currently, asset classes in US Equity (SPY,VTI), Foreign Equity (EFA,VEU) and Fixed Income (AGG,BND) are doing relatively well. These asset classes are available to ALLERGAN, INC. SAVINGS AND INVESTMENT PLAN participants.

To summarize, ALLERGAN, INC. SAVINGS AND INVESTMENT PLAN plan participants can achieve reasonable investment returns by adopting asset allocation strategies that are tailored to their risk profiles.

Symbols: AGN , SPY , VTI , EFA , VEU , AGG , BND , AOM , CIU , BIV , GWL , PFA , IVE , IWW , JKF , VTV , ELV , PWV , RPV , SCHV , IVV , IYY , IWV , VV , DLN , RSP , SCHX , IOO , VT , SHY , SHV , VGSH , PLK , USY , IVW , IWZ , JKE , VUG , ELG , QQQQ , RPG , SCHG , IJS , IWN , JKL , VBR , DSV , PWY , RZV , UVT , IJR , IWM , JKJ , VB , DSC , PJM , DES , SAA , UWM , SCHA , IJT , IWO , JKK , VBK , DSG , PWT , RZG , UKK

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