03/10/2011

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 NetApp Inc Employee 401K Savings Plan  (NASDAQ:NTAP) can achieve reasonable investment results using asset allocation strategies. We will also discuss how those portfolios are positioned in today’s market environment.

NetApp, Inc. provides enterprise storage and data management software and hardware products and services in the United States and internationally.  The company was formerly known as Network Appliance, Inc. and changed its name to NetApp, Inc. in March 2008. NetApp was founded in 1992 and is headquartered in Sunnyvale, California.

NetApp Inc Employee 401K Savings Plan's 401K plan consists of 21 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
Foreign Large Value: EFV
Intermediate Government: IEI
Intermediate-term Bond: AGG, BND
Large Blend: SPY,VTI
Large Growth: IVW, IWZ,SCHG
Mid-cap Growth: IJK, IWP, VOT
Mid-cap Value: IJJ, IWS, JKI, VOE
Moderate Allocation: AOM
Retirement Income:
Small Blend: IJR, IWM, VB, SCHA
Target Date 2000-2010: TZD
Target Date 2016-2020: TZG
Target Date 2026-2030: TZL
Target Date 2036-2040: TZV
Target Date 2050+:
World Stock: VT

As of Mar 9, 2011, 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 average (56%)
Fund Quality -- Rated as average (37%)
Portfolio Building -- Rated as average (57%)
Overall Rating: average (51%)

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 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 Mar 9, 2011)

Performance table (as of Mar 9, 2011)

From the above data, we can observe that a typical participant in NetApp's 401K can construct asset allocation portfolios that out performed those constructed from standard three assets. The plan, with only three major asset classes being covered, is a typical US-centric plan. It lacks of other major asset classes such as emerging market stocks and real estate investment (REITs). Adding funds in these categories can enhance returns and reduce risks. For example, currently Commodities, US Equity and Real Estate are doing well. Only US Equity is available to NetApp Inc Employee 401K Savings Plan participants.

To summarize, NetApp Inc Employee 401K Savings Plan plan participants can achieve reasonable investment returns by adopting asset allocation strategies that are tailored to their risk profiles. The plan can be improved by offering more funds in other major asset categories.


Disclosure:

MyPlanIQ does not have any business relationship with the company or companies mentioned in this article. It does not set up their retirement plans. The performance data of portfolios mentioned above are obtained through historical simulation and are hypothetical.

Symbols:NTAP,SPY,VTI,EFA,VEU,AGG,BND,EFV,IEI,IVW,SCHG,SCHA,IWM,IJR,IWP,IWS,IJK,IJS,IJJ,VB,VOT,VOE,JKI,

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