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Articles on VTI

  • Investment Management: Morgan Stanley Smith Barney Is Now on Risk Off Mode


    Morgan Stanley Smith Barney published its latest November viewpoints on portfolio strategies. It stated that the odds of a recession in the U.S. and beyond are “uncomfortably high.”  Here are its tactical changes for portfolios:



    The global cash represents dollars and other currencies. This itself should be treated as an asset class that needs careful management.

    Compared with MyPlanIQ's Tactical Asset Allocation(TAA), we are cautious and about 1/3 to 1/2 of full risk asset exposure. Some of our plans reduced risk asset exposures in September, helping to even preserve some gains from risk assets.

    See Six Core Asset ETFs that consists of six major asset classes US Stocks (SPY, VTI), International Stocks (EFA, VEU), Emerging Market Stocks (EEM, VWO), REITs (IYR, VNQ), Commodities (DBC, GSG) and Total US Bonds (AGG, BND).

    Portfolio Performance Comparison (as of 11/14/2011)

    Portfolio/Fund Name 1Yr AR 1Yr Sharpe 3Yr AR 3Yr Sharpe 5Yr AR 5Yr Sharpe
    Six Core Asset ETFs Strategic Asset Allocation Moderate 3% 12% 13% 73% 5% 25%
    Six Core Asset ETFs Tactical Asset Allocation Moderate -0% -15% 8% 65% 9% 67%
    SPY 6% 4% 13% 23% -0% -9%
    VBINX 6% 14% 13% 46% 3% 10%

    More details here.

    Symbols: SPX, COMP, SPY, VTI, EFA, EEM, VWO, VNQ, IYR, DBC, AGG, Investment Management, Asset Allocation

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  • Retirement Investments: Compared with Hedge Fund Performance


    The following is the newest October hot shot hedge fund performance data:



    More specifically,

     Strategies/Portfolios  YTD (as of 10/31/2011)
     Fund of Funds - Diversifed
     Diversified Macro
     Global Macro
     Six Core Asset ETF Strategic Asset Allocation Moderate  0.69%
    Six Core Asset ETF Tactical Asset Allocation Moderate -2.56%
    Permanent Portfolio Global trategic Asset Allocation Moderate 1%
    Permanent Portfolio Global Tactical Asset Allocation Moderate 2.13%

    Our Tactical Asset Allocation(TAA) is similar to Global macro hedge fund strategy. We can see that both Strategic Asset Allocation and Tactical Asset Allocation model portfolios are compared favorably with the hedge fund averages. 

    For more information, see Six Core Asset ETFs plan that has ONLY 6 broadbase ETFs (Vanguard low cost ETFs VTI, VEU, VNQ, VWO, BND and one Poweshares DB Commodities ETF DBC).

    Permanent Global Portfolio ETF Plan uses Gold (GLD), silver (SLV) and other ETFs to form a diversified hedging portfolio.

    Symbols: SPX, COMP, VTI, VEU, VNQ, VWO, BND, DBC, GLD, SLV, TLT, IYR, Retirement Investments, Hedge Funds, Asset Allocation

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  • Strategic and Tactical Allocation for Retirement Investments


    Strategic Asset Allocation(SAA) and Tactical Asset Allocation(TAA) can complement to each other. The following is a recent article Core Satellite Portfolios For Long-Term Investments published on that discussed this issue:

    "Recent market swings and weakness have proven to be difficult for both strategic and tactical asset allocation strategies. For a long-term investor who is concerned about his/her retirement investments, such as 401(k)s, IRAs, 403(b)s and variable annuity accounts, it is thus important to understand the strength and weaknes of the two common strategies.

    The concept of core satellite portfolio construction has been adopted for several years by many investment advisers, wealth managers and financial planners. The EDHEC has collected several papers detailing this concept."


    Read more on Core Satellite Portfolios For Long-Term Investments. 

    See the Core Satellite Six Core Asset ETFs 25 Core 75 Satellite portfolio and the comparison with strategic asset allocation and tactical asset allocation.

    Symbols: SPX, COMP, AGG, BND, DBC, EEM, EFA, GSG, IYR, SPY, VEU, VNQ, VTI, VWO, Retirement Investments, Portfolio Management, Asset Allocation

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  • Ameriprise Employees Filed A Suit Over Expensive 401K Plan Fund Choices


    Reuters recently reported the following:

    Analysis: Latest 401(k) lawsuit highlights ongoing fee concerns | Reuters

    (Reuters) - While workers can't do much when a stock market sell-off hits their 401(k) balances, they can speak up about poor investment choices and unreasonable plan fees. Now, more are taking those complaints to the courts as they bring lawsuits against employers they believe have allowed poorly-performing and overly-expensive funds into their retirement plans.

    "They put people into their products, and they were not vetted and were excessively expensive," Jerome Schlichter, who is representing the Ameriprise employees, told Reuters in an interview. He says the company was "self dealing."

    Based on MyPlanIQ's rating, Ameriprise Financial 401(k) Plan has an overall score 19% out 100%. Here are the more detailed analysis:

    Diversification -- Rated as average (44%)
    Fund Quality -- Rated as poor (3%)
    Portfolio Building -- Rated as below average (12%)
    Overall Rating: below average (19%)

    The 401K plan consists of 25 funds. These funds cover only 3 major assets: US Equity, Foreign Equity, Fixed Income.

    The actual fund lineups and their ratings:

    Asset Class Ticker Name Description Rating
    Foreign Large Blend AIZAX AllianceBernstein International A AllianceBernstein International 23%
    LARGE BLEND ALEIX RiverSource Disciplined Equity I RiverSource Disciplined Equity Fund 59%
    LARGE GROWTH VIGIX Vanguard Growth Index Instl Wellington Trust Large Cap Growth Portfolio 81%
    LARGE VALUE RSEDX RiverSource Diversified Equity Income R5 RiverSource Diversified Equity Income Fund 35%
    LARGE VALUE RSEYX RiverSource Equity Value R5 RiverSource Trust Equity Index Fund III 35%
    Mid-Cap Growth VMGIX Vanguard Mid-Cap Growth Index Inv Wellington Trust Mid Cap Growth Portfolio 57%
    MID-CAP VALUE RMCVX RiverSource Mid Cap Value R4 RiverSource Mid Cap Value Fund 36%
    MID-CAP VALUE RMCVX RiverSource Mid Cap Value R4 RiverSource Mid Cap Value Fund 36%
    Small Growth ALSRX Alger SmallCap Growth Institutional I Alger Small Cap Fund 67%
    SMALL VALUE JASCX James Small Cap James Small Cap Fund 77%
    US EQUITY AMP Ameriprise Financial Inc Ameriprise Financial, Inc. Common Shares  
    Intermediate Government VFIUX Vanguard Interm-Term Treasury Adm RiverSource Government Income Fund 59%
    Intermediate-Term Bond RDBIX RiverSource Diversified Bond I RiverSource Diversified Bond Fund 45%
    Moderate Allocation IDMYX RiverSource Balanced R4 RiverSource Balanced Fund 26%
    ROOT CASH CASH Evergreen Money Market Fund  
    ROOT CASH CASH RiverSource Trust Money Market Fund I  
    ROOT CASH CASH RiverSource Trust Stable Capital Fund I  
    Target Date 2000-2010 RSSPX RiverSource Retirement Plus 2010 Y RiverSource Retirement Plus 2010 11%
    Target Date 2011-2015 RSFNX RiverSource Retirement Plus 2015 Y RiverSource Retirement Plus 2015 26%
    Target Date 2016-2020 RSNFX RiverSource Retirement Plus 2020 Y RiverSource Retirement Plus 2020 11%
    Target Date 2021-2025 RSMEX RiverSource Retirement Plus 2025 Y RiverSource Retirement Plus 2025 7%
    Target Date 2026-2030 RPTYX RiverSource Retirement Plus 2030 Y RiverSource Retirement Plus 2030 14%
    Target Date 2031-2035 RPOYX RiverSource Retirement Plus 2035 Y RiverSource Retirement Plus 2035 22%
    Target Date 2036-2040 RPFYX RiverSource Retirement Plus 2040 Y RiverSource Retirement Plus 2040 21%
    Target Date 2041-2045 RRPYX RiverSource Retirement Plus 2045 Y RiverSource Retirement Plus 2045 30%

    From the above, one can see that RiverSource funds have very low ratings. These funds are expensive. For example, RiverSource Diversified Bond I (RDBIX) has 0.49% expense ratio, compared with Vanguard Total Bond Market Index Adm (VBTLX).

    Here is the performance between RDBIX and VBTLX:

    Portfolio Performance Comparison (as of 10/13/2011)

    Portfolio/Fund Name 1Yr AR 1Yr Sharpe 3Yr AR 3Yr Sharpe 5Yr AR 5Yr Sharpe
    RDBIX 2% 54% 9% 164% 5% 79%
    VBTLX 3% 121% 8% 163% 6% 118%


    See RDBIX vs. VBTLX for more detailed comparison.

    Interested readers can compare other funds using MyPlanIQ comparison tool.

    The following are the model portfolio performance, compared with Simple Is Better (SIB) 3 Core Asset ETF portfolios.

    Performance chart (as of Oct 12, 2011)

    Performance table (as of Oct 12, 2011)

    So not only the plan provides minimum diversification (only three major asset US stocks, International Stocks and Bonds), it also has many low quality and expensive funds. No wonder the plan participants rebeled.

    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: AMP, SPX, COMP, SPY, VTI, EFA, AGG, 401K Investments, Portfolio Management

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  • 401K Investments: Alcoa Savings Plan Review


    Retirement investing is a long term process. This report reviews Alcoa Inc Savings Plan MTIA 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 Alcoa Inc Savings Plan MTIA can achieve reasonable investment results using portfolio management and risk management strategies for their 401k investments.

    Plan Review and Rating

    Alcoa, Inc. engages in the production and management of aluminum, fabricated aluminum, and alumina. The company is the largest aluminum provider in the world. Alcoa, Inc. was founded in 1888 and is based in New York, New York.

    Alcoa Inc Savings Plan MTIA's 401K plan consists of 13 funds. These funds enable participants to gain exposure to 4 major assets: US Equity, Foreign Equity, Emerging Market Equity, Fixed Income.


    Asset Class Ticker Name
    Moderate Allocation RLBFX American Funds American Balanced R5
    LARGE BLEND RICFX American Funds Invmt Co of Amer R5
    DIVERSIFIED EMERGING MKTS MGEMX Morgan Stanley Inst Emerging Mkts I
    WORLD STOCK RNPFX American Funds New Perspective R5
    Foreign Large Growth PRITX T. Rowe Price International Stock
    SMALL BLEND PASSX T. Rowe Price Small-Cap Stock Adv
    Moderate Allocation VGSTX Vanguard STAR Inv
    LARGE BLEND VITPX Vanguard Instl Ttl Stk Mkt Idx Instl Pls
    Intermediate-Term Bond VBMFX Vanguard Total Bond Market Index Inv
    MID-CAP BLEND VIEIX Vanguard Extended Market Idx Instl
    Small Growth MMCIX BNY Mellon Small/Mid Cap Inv
    Foreign Large Value MPITX BNY Mellon International M

    As of Oct 10, 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 average (51%)
    Fund Quality -- Rated as average (45%)
    Portfolio Building -- Rated as above average (81%)
    Overall Rating: average (61%)

    On stock/equity side, it offers various styles (large, mid and small cap) stock funds. Some of those funds are of high quality (such as American Funds AMCAP R3). An excellent moderate allocation fund American Funds American Balanced R5 is available for anyone who prefers using one stop shop fund.

    On fixed income (bond) side, Alcoa's plan offers only one Vanguard total bond index fund (VBMFX) for its plan participants. This is an area that can be expanded.

    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 proper asset allocation in place for one's retirement investment portfolios.

    Asset Class Trends

    The following table shows how major asset classes such as US equity (stocks), foreign equity, emerging market equity, Real Estate Investment Trusts (REITs), commodities and fixed income (bonds) are ranked based on their price momentum.

    Assets Class Symbols 10/10
    Gold GLD 7.88% 8.29% v
    Intermediate Treasuries IEF 3.76% 7.81% v
    Municipal Bonds MUB 2.29% 3.67% v
    Total US Bonds BND 2.05% 3.57% v
    Mortgage Back Bonds MBB 1.45% 2.43% v
    US Credit Bonds CFT 1.4% 2.41% v
    International Treasury Bonds BWX 0.87% -1.35% ^
    Treasury Bills SHV 0.05% 0.01% ^
    Emerging Mkt Bonds PCY -0.27% -0.92% ^
    US Stocks VTI -0.74% -10.36% ^
    US High Yield Bonds JNK -0.86% -5.7% ^
    US Equity REITs VNQ -3.32% -11.9% ^
    Commodities DBC -3.68% -8.09% ^
    International Developed Stks EFA -4.28% -14.26% ^
    International REITs RWX -5.45% -13.89% ^
    Emerging Market Stks VWO -10.26% -20.42% ^
    Frontier Market Stks FRN -10.66% -19.69% ^

    For more information on the trends of major asset classes, please see Asset Class Trend Watch


    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
    Emerging Market Equity: EEM or VWO
    Fixed Income: AGG or BND

    Performance chart (as of Oct 10, 2011)

    Performance table (as of Oct 10, 2011)

    Currently Fixed Income, Cash and International Bonds are doing well. Only one fixed income bond fund VBMFX is available to Alcoa Inc Savings Plan MTIA participants.

    To summarize, participants adopting Alcoa Inc Savings Plan MTIA 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: AA, SPX, COMP, VTI, VEU, VWO, BND, RAFCX, RLBFX, RICFX, MGEMX, RNPFX, PRITX, PASSX, VGSTX, VITPX, VBMFX, VIEIX, MMCIX, MPITX, 401K Investments, Portfolio Management, Retirement Investing

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