Retirement investing is an integral part of American personal finance. With $8.9 trillion parked in over 800 thousand retirement plans such as 401K, millions of Americans will increasingly rely on their 401K accounts to fund their future retirement needs. 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 Vanguard-VA-Clone can achieve reasonable investment results using asset allocation strategies. We will also discuss how those portfolios are positioned in today’s market environment.
Vanguard-VA-Clone's 401K plan consists of 11 funds. These funds enable participants to gain exposure to 4 major assets: US Equity , Foreign Equity , REITs , Fixed Income . The list of minor asset classes covered:
Foreign Large Blend:
EFA
,
VEU
,
GWL
,
PFA
Global Real Estate:
IFGL
,
RWX
High Yield Bond:
HYG
,
JNK
,
PHB
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
Real Estate:
IYR
,
ICF
,
VNQ
Short Government:
SHY
,
SHV
,
VGSH
,
PLK
,
USY
As of Dec 3, 2010, this plan investment choice is rated as 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 above average
(72%)
Fund Quality -- Rated as poor
(6%)
Portfolio Building -- Rated as average
(40%)
Overall Rating: average
(39%)
The chart and table below show the historical performance of moderate model portfolios employing strategic and tactical asset allocation strategies ( SAA and TAA , both provided by MyPlanIQ). 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 Dec 3, 2010)
Performance table (as of Dec 3, 2010)
Portfolio Name | 1Yr AR | 1Yr Sharpe | 3Yr AR | 3Yr Sharpe | 5Yr AR | 5Yr Sharpe |
---|---|---|---|---|---|---|
Vanguard-VA-Clone Tactical Asset Allocation Moderate | 8% | 64% | 5% | 48% | 8% | 75% |
Vanguard-VA-Clone Strategic Asset Allocation Moderate | 12% | 105% | 1% | 6% | 5% | 26% |
Four Core Asset Index Funds REITs Tactical Asset Allocation Moderate | 8% | 62% | 6% | 55% | 9% | 80% |
Four Core Asset Index Funds REITs Strategic Asset Allocation Moderate | 12% | 94% | 2% | 7% | 5% | 20% |
Currently, asset classes in US Equity ( SPY , VTI ) and REITs ( IYR , VNQ , ICF ) are doing relatively well. These asset classes are available to Vanguard-VA-Clone participants.
To summarize, Vanguard-VA-Clone 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
US Equity
and
REITs
funds.
Disclosure:
Symbols: SPY , VTI , EFA , VEU , IYR , VNQ , ICF , AGG , BND , HYG , JNK , PHB , CIU , BIV , GWL , PFA , IVE , IWW , JKF , VTV , ELV , PWV , RPV , SCHV , IFGL , RWX , IVV , IYY , IWV , VV , DLN , RSP , SCHX , SHY , SHV , VGSH , PLK , USY , IVW , IWZ , JKE , VUG , ELG , QQQQ , RPG , SCHG , IJH , IWR , JKG , VO , MDY , EMM , PJG , DON , EZM , MVV