Core Satellite Portfolios In A 401k Account
One of the most frequently asked questions on how to use MyPlanIQ asset allocation portfolios is that it is often hard to just implement a Tactical Asset Allocation(TAA) in such an account. The main reason is that for many active 401k accounts, investors are still contributing (adding) new salary deduction money per pay check to the account. The inflow of the new money makes it hard to keep track of the holding periods of funds invested, thus making the rebalance of the more active TAA much harder not to violate minimum holding periods imposed by funds or the plan.
Fortunately, there is an easy and good solution to this if you decide to implement a core satellite portfolio instead of a pure TAA portfolio in a 401k account. We regularly discussed a core satellite portfolio methodology, as most often in the recent newsletter September 14, 2015: Core Satellite Portfolios In Market Turmoil. Interested readers can refer to our core satellite section in Newsletter Collection for more background readings.
Implementation details of a core satellite portfolio in a 401k account
The best way to implement a core satellite portfolio in a 401k account is to construct an SAA (core) subportfolio that invests the newly added (salary deduction per pay check, for example) and a TAA (satellite) subportfolio that invests old money. A normal process would look like the following:
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