Re-balance Cycle Reminder All MyPlanIQ’s newsletters are archived here.

For regular SAA and TAA portfolios, the next re-balance will be on Monday, September 15, 2014. You can also find the re-balance calendar for 2013 on ‘Dashboard‘ page once you log in.

As a reminder to expert users: advanced portfolios are still re-balanced based on their original re-balance schedules and they are not the same as those used in Strategic and Tactical Asset Allocation (SAA and TAA) portfolios of a plan.

Please note that we now list the next re-balance date on every portfolio page.

Risk & Diversification: Interview recently published an interview with MyPlanIQ. The following are some excerpts from the interview. They answer a few basic questions regarding our views on retirement investments. 

Tell us about MyPlanIQ…when and why did you start your business?

MyPlanIQ was officially founded in February 2008. Before I founded MyPlanIQ, I had worked in the semiconductor and software industry as an engineer and then as an entrepreneur.

Like many Americans, I invested my retirement savings in my workplace retirement 401(k) plans. Similar to many, I was busy working and paid little attention to my retirement investments. A case in point is that, in the late 1990s, when I was focused on running my startup in electronic design automation (EDA), I invested the bulk of my 401(k)s in some high-flying internet technology mutual funds, as I naturally followed many technology professionals, only to find out that these funds lost over 70 percent of their values (one fund lost over 90 percent and then closed) in the aftermaths of the technology downturn from 2001 to 2002. It was a wake-up call for me.

Retirement investing is a vastly underserved area. I believe that Americans are very much in need of a simple, low-cost, yet effective retirement investing platform. That drove me to start MyPlanIQ.

How does MyPlanIQ work?

MyPlanIQ provides a simple online platform for retirement investments. Users can select their retirement 401(k) or 403(b) plans and construct a model portfolio using their personal risk profiles. The system helps users to decide their risk profiles by asking a few questions. Once a model portfolio for their plan is customized, users receive monthly rebalance email instructions, and they can follow the instructions to rebalance their 401(k) accounts.

We also provide both ETFs and mutual funds based model portfolios customized for major brokerages including Fidelity, Charles Schwab, TD Ameritade, ETrade, Merrill Edge, etc. Users can follow these model portfolios in their IRA and taxable brokerage accounts.

For users who prefer a hands-off approach, we also provide a flat-rate based rebalance service from a network of financial advisors.

MyPlanIQ provides both strategic asset allocation and tactical asset allocation based model portfolios. Both asset allocation strategies are widely practiced and have strong academic research backings. We advocate using a combination of both types of portfolios.

Can you walk us through each of the main types of retirement investments? What they are, and how they work?

Most Americans can invest their nest eggs in either workplace retirement plans such as 401(k)s or 403(b)s, or they can open a brokerage investment account as Individual Retirement Account (IRA). Investments in 401(k) or IRA accounts are tax deferred. The gains in these accounts are not taxed until they start to withdraw when they reach retirement age, 59 1/2. You can also invest in a taxable brokerage account.

Retirement investments offered in a 401(k) account are usually mutual funds or separate managed accounts (similar to mutual funds but instead managed separately by investment managers). A mutual fund is a pool of investments that are usually stocks, bonds or money market instruments. It is operated by an investment company. The simplest mutual funds are index funds that track broad base market indexes such as Standard & Poor’s 500 stock index (S&P 500), total bond market index, etc. These index funds have low expense and are widely diversified. However, a majority of funds offered in 401(k) plans are still actively managed funds by investment managers’ decisions.

IRAs and some 401(k) plans can also invest in ETFs (Exchange Traded Funds). Similar to mutual funds, ETFs are also a pool of investments, However, unlike mutual funds, ETFs are priced continuously during market hours and thus can be traded without restrictions. Many ETFs are index based. They offer wide diversification and low cost.

Other retirement investments include company stocks. Employees can purchase their company stocks in their 401(k) plans. Individual company stocks are more volatile and risky as their prices can be affected by a single company’s financial and other factors, unlike an ETF or a diversified mutual fund, whose price is decided collectively by hundreds or even thousands of its underlying holdings (stocks or bonds).

After the Great Recession, we’re guessing people are probably a little more hesitant to start investing again. What would you forecast for the economy in the next five to 10 years to reassure people that putting their money in retirement investments is a smart move?

The Great Recession in 2008-2009 and the bear market in 2001-2002 have inflicted a severe damage in both Americans’ retirement investments as well as their confidence. However, from the performance data of tens of thousands of company 401(k) plan model portfolios in the MyPlanIQ database, we can also show that one can achieve a reasonable return within an acceptable risk by adopting a disciplined and sound asset allocation investment strategy in the past 15 years that span the two severe bear markets.

Looking ahead, even though the U.S. economy has recovered a bit, there will be lots of challenges and uncertainties. Even though no one can predict the future of the economy or stock markets, studies have shown that a risk managed diversified portfolio can deliver inflation beating returns over a long period of time.

What is an investment risk, and how do you help customers manage theirs?

The main investment risk is the loss of capital. We help customers manage investment risk by offering a properly structured portfolio that adopts the following principles:

  • Diversification: invest in broad base asset classes such as U.S. stock indexes or diversified mutual funds or ETFs, international stock indexes, emerging market stock indexes, real estate investment trusts (REITs), broad base bond market indexes and commodity indexes instead of in a portfolio with concentrated positions in single stocks or other instruments
  • Dynamically respond and adjust exposure to risk assets (such as stocks, high yield bonds, long term bonds, etc.) based on market and economic conditions
  • Performing regular and disciplined portfolio rebalances

What factors should investors consider when trying to determine their personal risk tolerance?

Investors should consider various factors to decide how much (percentages) to be allocated in each asset class, especially risk assets such as stocks. These factors include but are not limited to the following:

  • Current financial situation such as current savings and expenses.
  • Current and future income and spending situations such as income growth, how stable the future income sources are and how much expenses will be incurred (such as kids’ high school and college education expenses).
  • Personal psychological tolerance when stocks and other investments prices fluctuate. (Some investors can withstand the loss better psychologically than others. This factor should be taken into account carefully so that when a market downturn hits, investors can stay on course.)
  • Retirement ages and estate planning.

Why are diversified portfolios critical for long-term investment success?

Diversification is perhaps one of the most important factor for long-term investment success.

Diversification happens at the following two levels:

  • Cross assets level: Stocks and bonds, two of the largest asset classes, behave very differently during various market conditions. By properly allocating exposure in stocks and bonds, investors can manage their investment risks. For example, a 60 percent U.S. stocks and 40 percent bonds portfolio can cut down maximum portfolio fluctuation (loss from peak to trough) by roughly more than 40 percent while still delivering a satisfying return. For example, for the past 10 years from 7/28/2004 to 7/28/2014, S&P 500 stock index has delivered about 8.2 percent annualized return, compared with the 60 percent U.S. stocks 40 percent U.S. bonds portfolio’s 7.5 percent annualized return.
  • Individual asset level: Instead of investing a single company stock such as IBM or General Electric, investing in a basket of stocks such as S&P 500 companies can reduce company specific investment risk.

How should investors approach diversifying their investments? What are some best practices or rules of thumb?

As described previously, we advocate diversification at two levels:

First, properly diversify among risk assets such as stocks, REITs and fixed income assets.

Second, choose low-cost diversified index funds for each individual asset class such as U.S. large company stocks, U.S. small company stocks, International or emerging market stocks and U.S. bonds, etc.

Some of the best practices:

  • Beware of stocks and bonds balances to control risk exposure.
  • Beware of expenses or costs of a fund: use low-cost funds possible.
  • Use broad base index funds if possible.
  • Regularly rebalance based on a systematic strategy to make sure your portfolios and investments (funds) are not out of whack.

Portfolio Reviews

On Advanced Strategies page, we monitor the following S&P trend indicator based portfolios that can take long/short positions on commodity, currency and bond ETFs. These portfolios did very well during the 2008-2009 financial crisis. But afterwards, they have done very poorly. Even though this has something to do with the poor performance of commodities, it does indicate how hard it is to maintain a long/short hedge during a bull market.

Market Overview

At the moment, we see US economy has had a firmer recovery/expansion among other major economic regions: Euro zone is fighting against the deflation threat while emerging markets are still at a cross road. On the other hand, one should be aware that the US stocks are the most expensive among these three stock assets.

For more detailed asset trend scores, please refer to 360° Market Overview.

We would like to remind our readers that markets are more precarious now than other times in the last 5 years. It is a good time and imperative to adjust to a risk level you are comfortable with right now.  However, recognizing our deficiency to predict the markets, we will stay on course. 

We again copy our position statements (from previous newsletters): 

Our position has not changed: We still maintain our cautious attitude to the recent stock market strength. Again, we have not seen any meaningful or substantial structural change in the U.S., European and emerging market economies. However, we will let markets sort this out and will try to take advantage over its irrational behavior if it is possible. 

We again would like to stress for any new investor and new money, the best way to step into this kind of markets is through dollar cost average (DCA), i.e. invest and/or follow a model portfolio in several phases (such as 2 or 3 months) instead of the whole sum at one shot. 

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