09/13/2011

A recent article by Geoff Considine on Portfolioist.com discussed how PIMCO's Global Mutli-Asset (PGAIX) fund uses tail insurance (out of money put) to hedge against recent market volatility. Its conclusions are:

Using the past year as the test case, a well-designed and highly-diversified asset allocation has provided a very satisfactory defense in highly volatile markets. It is, as yet, unclear that the additional complexity of ‘tail insurance' has paid off.

Geoff used the following table to compare the fund's performance against several other benchmarks (up to 8/11/2011):

 Source: Data from Sungard’s FAME  and FolioInvesting.com

We would like to see how such a black swan insurance based fund is compared with our Six Core Asset ETFs benchmarks, up to 9/12/2011:

Five Year Chart

See complete portfolio comparison.

The Six Core Asset ETFs consists of the following six ETFs as its candidate funds:

Our conclusions are that it is essential to have diversification as the first line of defense (which is the same as Geoff's conclusion), regardless of what other hedging techniques you are using. On the other hand, both tactical and tail event (black swan) insurance can add valuable hedge as the second line of defense, as evident in the above comparison.

In retirement investments (such as 401k investments), it is impossible to implement the tail insurance (out of money stock market index put buying), not to mention the complexity of such an insurance. On the other hand, it is relatively easy to implement a dynamic asset allocation strategy such as MyPlanIQ's Tactical Asset Allocation in any 401K, IRA, 403B, 457 or variable annuity account. An asset allocation that is strategic or tactical or both in a retirement investment account is an effective way to navigate through current volatile markets.

Symbols: SPX, SPY, PGAIX, VTI, VEU, VWO, VNQ, DBC, BND, Retirement Investments, 401K Investments, 401K, IRA, Asset Allocation, Tactical Asset Allocation, Strategic Asset Allocation

Disclaimer: 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.

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09/13/2011

A recent article by Geoff Considine on Portfolioist.com discussed how PIMCO's Global Mutli-Asset (PGAIX) fund uses tail insurance (out of money put) to hedge against recent market volatility. Its conclusions are:

Using the past year as the test case, a well-designed and highly-diversified asset allocation has provided a very satisfactory defense in highly volatile markets. It is, as yet, unclear that the additional complexity of ‘tail insurance' has paid off.

Geoff used the following table to compare the fund's performance against several other benchmarks (up to 8/11/2011):

 Source: Data from Sungard’s FAME  and FolioInvesting.com

We would like to see how such a black swan insurance based fund is compared with our Six Core Asset ETFs benchmarks, up to 9/12/2011:

Five Year Chart

See complete portfolio comparison.

The Six Core Asset ETFs consists of the following six ETFs as its candidate funds:

Our conclusions are that it is essential to have diversification as the first line of defense (which is the same as Geoff's conclusion), regardless of what other hedging techniques you are using. On the other hand, both tactical and tail event (black swan) insurance can add valuable hedge as the second line of defense, as evident in the above comparison.

In retirement investments (such as 401k investments), it is impossible to implement the tail insurance (out of money stock market index put buying), not to mention the complexity of such an insurance. On the other hand, it is relatively easy to implement a dynamic asset allocation strategy such as MyPlanIQ's Tactical Asset Allocation in any 401K, IRA, 403B, 457 or variable annuity account. An asset allocation that is strategic or tactical or both in a retirement investment account is an effective way to navigate through current volatile markets.

Symbols: SPX, SPY, PGAIX, VTI, VEU, VWO, VNQ, DBC, BND, Retirement Investments, 401K Investments, 401K, IRA, Asset Allocation, Tactical Asset Allocation, Strategic Asset Allocation

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09/26/2010

In our previous article, we discussed Hewlett Packard 401K plan. This article continues the series of case studies for various 401K plans for IT companies. It discusses Google 401K Plan and how portfolios in this plan are positioned in today’s market environment.

Google (NASDAQ: GOOG) is an internet search and advertising company that pioneered in search technology. It dominates search and its related advertising business. It is headquartered in the old SGI building in Mountain View, California. Google is well known for its talented employees and innovation friendly work environment. Google offers generous 401K match to its employees.

Google 401K plan consists of 15 funds. These funds enable participants to gain exposure to 4 major assets: US Equity, Foreign Equity, REITs and Fixed Income. The list of minor asset classes covered are

Large Blend: SPY, VTI
Mid-Cap Blend: MDY, IWR
Foreign Large Blend: EFA
Foreign Large Growth: EFG
Real Estate: IYR, ICF, VNQ
Intermediate-Term Bond: AGG, BND
Short Bond: BSV

As of 9/15/2010, this plan investment choice is rated as Above 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 (score: 62%)

Fund Quality – Rated as above average (score: 65%)

Portfolio Building  -- Rated as great (score: 92%)

Overall Rating: above average (score: 75%)

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 four 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 9/15/2010)

Performance table (as of 9/15/2010)

Currently, asset classes in REITs (Real Estate Investment Trusts) (VNQ, IYR, ICF) and fixed income (AGG, BND) are doing relatively well. These asset classes are available to Google 401k plan participants.

To summarize, Google 401K 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 REITs and fixed income funds.

labels:investment,

Symbols:GOOG,HPQ,SPY,VTI,IWD,VTV,IWF,VUG,MDY,IWR,EFA,EFG,EFV,SCZ,IYR,ICF,VNQ,BWX,PCY,EMB,BND,IEF,TLT,BSV,MUB,HYG,JNK,PHB,VEU,ETF,Portfolio,Building,Asset,Allocation,IRA,401K,

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09/16/2010

Retirement investing is an integral part of American personal finance. With $8.9 trillion parked in over 800 thousand retirement plans (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 Hewlett Packard 401K plan can achieve reasonable investment results using asset allocation strategies. We will also discuss how those portfolios are positioned in today’s market environment.

Hewlett Packard (HP) (NYSE: HPQ) is one of the largest IT companies. Founded by Bill Hewlett and Dave Packard in Palo Alto, California, HP was the earliest technology company that eventually led the formation of Silicon Valley. Today Hewlett-Packard has over 300 thousands employees world wide.

HP is known to be employee friendly. It has been named several times as one of the best companies to work for. Its 401k plan provides a well diversified array of high quality funds.

Hewlett Packard 401K plan consists of 29 funds. These funds enable participants to gain exposure to 5 major assets: US Equity, Foreign Equity, Emerging Market Equity, REITs and Fixed Income. The the list of minor asset classes covered:

Large Blend: SPY, VTI
Large Value: IWD, VTV
Large Growth: IWF, VUG
Mid-Cap Blend: MDY, IWR
Foreign Large Blend: EFA
Foreign Large Growth: EFG
Foreign Large Value: EFV
Foreign Small/Mid Growth: SCZ
Diversified Emerging Mkts: EEM, VWO
Real Estate: IYR, ICF, VNQ
World Bond: BWX
Emerging Markets Bond: PCY, EMB
Inflation-Protected Bond: TIP
Intermediate-Term Bond: AGG, BND
Long Government: IEF, TLT
UltraShort Bond: BSV
Muni National Long: MUB
High Yield Bond: HYG, JNK

As of 9/13/2010, this plan investment choice is rated as Above 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 great (score: 89%)

Fund Quality – Rated as above average (score: 76%)

Portfolio Building  -- Rated as above average (score: 72%)

Overall Rating: above average (score: 78%)

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 five 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)
Emerging Market Equity (EEM or VWO)
REITs (IYR or VNQ or ICF)
Fixed Income (AGG or BND)

Performance chart (as of 9/13/2010)

Performance table (as of 9/13/2010)

Currently, asset classes in emerging market stocks (EEM, VWO), REITs (Real Estate Investment Trusts) (VNQ, IYR, ICF) and fixed income (AGG, BND) are doing relatively well. These asset classes are available to HP 401k participants.

To summarize, Hewlett Packard 401K 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 emerging market stocks, REITs and fixed income funds.

labels:investment,

Symbols:HPQ,SPY,VTI,IWD,VTV,IWF,VUG,MDY,IWR,EFA,EFG,EFV,SCZ,IYR,ICF,VNQ,BWX,PCY,EMB,BND,IEF,TLT,BSV,MUB,HYG,JNK,PHB,VEU,ETF,Portfolio,Building,Asset,Allocation,IRA,401K,

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