As with any successful endeavor, planning is always the foremost important step to begin with. Factors to consider and put into perspective include retirement needs, estate planning, pensions, social security income, mortgage payments, credit card payments, regular spending. We suggest you consider the following two steps:

• Expectation (goal): retirement and estate expectation, lifestyle.
• Cash Flow: divide your projections into two parts: income and expenses.

For a thorough plan, you could either use some online tools, Excel or just plain tables or consult with a financial adviser. Rules of thumb then could be derived and reviewed regularly. A popular rule of thumb for a retiree’s spending, for example, would be to spend 4% of your savings annually. Those are subject to further investigation but are good a starting point.

A defined contribution plan is a plan in which an employee’s benefits during retirement depend on the contributions made to and the investment performance of the assets in his or her account, rather than on the employee’s years of service or earnings history. Like a typical savings account, a defined-contribution account contains a specific balance at any given time, which is equal to the market value of the assets accumulated in the account. Unlike with a defined-benefit plan, employees have substantial control over how the contributions to their plan are invested and may generally choose from an assortment of stocks (often including company stock), bonds, mutual funds, and other investment vehicles. Examples of defined-contribution plans include 401(k) plans, 403(b) plans, and 457 plans, all of which share similar characteristics.

A 401(k) retirement plan is an employer sponsored plan that an employee has a tax-deferred account in which she may contribute pre-tax earnings, and in many cases, some portion of the contribution is matched by the employer.  A variety of investments including mutual funds, commingled funds, separately managed accounts can be chosen for a 401(k) plan. Some employers recently started to offer self-directed investment choice to allow participants to choose investments from a wider array of funds in a brokerage. 

A 403(b) Retirement Plan is a retirement plan that’s similar to a 401(k) plan but for non-profit organizations (such as public schools, state and local government employees, hospitals, and charitable organizations).

A 529 College Savings Plan is named for Section 529 of the Internal Revenue Service Code, College Savings Plans are qualified tuition programs designed to help parents save and invest to pay for their children’s college education. 529 plans are created by state or local governments to let parents pre-pay the cost of tuition at an in-state or municipal university. A variety of investments can be chosen for 529 plans, with the money growing tax-deferred as long as funds are kept in the plan.

A variable annuity is a contract between you and an insurance company, under which you make a lump-sum payment or series of payments. In return, the insurer agrees to make periodic payments to you beginning immediately or at some future date. You can choose to invest your purchase payments in a range of investment options, which are typically mutual funds.

Variable Universal Life Insurance (VUL) is a form of whole life insurance which combines some features of universal life insurance, such as premium and death benefit flexibility, with some features of variable life  insurance, such as more investment choices. Variable universal life adds to the flexibility of universal life by allowing the holder to choose among investment vehicles for  the savings portion of the account. The differences between this arrangement and investing individually are the tax advantages and fees that accompany the insurance policy

A tax deferred account is an investment account is tax-deferred if you are not required to pay taxes each year, but rather only pay when you withdraw money after a specified date. The most common tax-deferred accounts are IRAs, 401(k)s, and 403(b)s. There are penalties associated with taking money out of these accounts before a specified date.

A taxable account is an investment account that you are required to pay taxes each year on any income (dividends and interests) and capital gains (the realized asset appreciation after you sell). 

A defined benefit plan is an employer-sponsored retirement plan where employee benefits are sorted out based on a formula using factors such as salary history and duration of employment. Investment risk and portfolio management are entirely under the control of the company. There are also restrictions on when and how you can withdraw these funds without penalties.

A deferred compensation plan is an arrangement whereby an employee or owner defers some portion of their current income until a specified future date. Wages earned in one period are actually paid at a later date. A deferred compensation plan could be further classified as qualified or nonqualified. A qualified plan receives certain tax preferences.

Once you derive your reasonable financial expectation, you now could start to plan out your investment. The key part of the investment process is the asset allocation. You should consider all of your assets in a holistic portfolio. The assets include your houses, savings, retirement plans, annuities, life insurance, and taxable brokerage accounts. A proper asset allocation is the key to maintain the long term growth and stability. Diversification across various assets is the key to achieve such goals.

Asset classes are categories investment securities such as ETFs and mutual funds belong to. They are classified as funds in the same category or asset class often behave more closely (or correlated).

In MyPlanIQ, we consider the following as the major asset classes:

• US Equities, represented by Wilshire 5000 total return index (^DWC), S&P 500 index (^GSPC or ETF SPY).
• International Equities, represented by MSCI EAFE Index (EFA).
• Emerging Market Equities, represented by MSCI Emerging Markets Index (EEM) or Vanguard Emerging Market ETF (VWO).
• Real Estate Investment Trusts, represented by Dow Jones US Real Estate (IYR) and Dow Jones International Real Estate (RWX).
• Commodities, represented by S&P Goldman Sachs Commodity Index (GSG) or DB commodity Index Tracking (DBC).
• US Fixed Income, represented by Barclays Aggregate Bond Index (AGG).
• International Fixed Income, represented by Barclays Capital International Treasury Bond Index (BWX).

In each major asset class, one could further decompose a major asset class into sub asset classes. For example, US Equities include Large Cap Blend, Large Cap Growth, Large Cap Value, Mid Cap Blend, Mid Cap Growth, Mid Cap Value, Small Cap Blend, Small Cap Growth, Small Cap Value and Micro Cap. We recommend users to refer to Morningstar’s categories for a more complete taxonomy.

A tradable instrument representing financial value. They are further classified into debt securities (such as bonds), equity securities (such as common stocks) and derivative contracts. Sometimes, mutual funds, ETFs and other financial instruments are also called securities. 

A mutual fund is a professionally managed type of collective investment scheme that pools money from many investors and invests it in stocks, bonds, short-term money market instruments, and/or other securities. In legal structure, a mutual fund is structured as an investment company owned by its shareholders and hire an investment manager (can be a company) to manage the investments.

An ETF is an investment fund traded on stock exchanges, much like stocks. An ETF holds assets such as stocks or bonds and it’s trades at approximately the same price as the net asset value of its underlying assets over the course of the trading day. Popular ETFs include SPDR SPY that tracks S&P 500 index or AGG that tracks the total bond index. 

If the price of an ETF deviates from its underlying holdings’ value (called Net Asset Value or NAV), a mechansim exists to arbitrage to force the price to be close to the NAV. However, there is no absolute quarantee this will happen. In fact, in some financial crisies, some ETFs’ prices were greatly depressed. However this phenomenon should only exist for a few days at most, once markets returned to its normal state. 

An index fund is a mutual fund or an ETF that tracks a standard index such as S&P 500 index. 

A life-cycle fund is a special category of balanced, or asset-allocation, mutual fund in which the proportional representation of an asset class in a fund’s portfolio is automatically adjusted  during the course of the fund’s time horizon. The automatic portfolio adjustment run from a position of higher risk to one of lower risk as the investor ages and/or nears retirement. 

A Target Date Fund is a mutual fund in the hybrid category that automatically resets the asset mix (stocks, bonds, cash equivalents) in its portfolio according to a selected time frame that is appropriate for a particular investor. It is expected that a target date fund will reduce its exposure in risky assets gradually as the target date is approaching. A target-date fund is similar to a life-cycle fund except that a target-date fund is structured to address some date in the future, such as retirement.

A No Load Mutual Fund is a mutual fund which doesn’t impose a sales or redemption charge, selling and redeeming its shares at net asset value. 

A Load Mutual Fund is a mutual fund that charges a load that is a fee when you buy or sell the units of a fund. When you buy the units of a fund, you pay a percentage of it as a fee. This is known as the entry or front end load. Generally, if funds charge an entry load, they will not charge an exit load or back end load and vice versa. Only one of the loads is charged. The load is a percentage of the NAV.

A no transaction fee fund is a mutual fund that is offered to investors by a brokerage firm without any form of commission charged for the transaction. This structure is advantageous to the investor because it allows him or her to purchase the mutual fund without incurring an up-front commission fee on the trade. 

A minimum holding period is a minimum period that a mutual fund must be held to avoid redemption fee charged. Mutual funds instigate this requirement to avoid excessive trading activities from some invstors. 

A redemption fee is a fee charged by a fund if the minimum holding period is not met. 

A separatedly managed account (SMA) is an individual investment account offered typically by a brokerage firm through one of their brokers or financial consultants and managed by independent investment management firms (often called money managers for short) and have varying fee structures. 

A commingled fund is a mutual fund that includes assets from several accounts, pooled together, to reduce management and administration costs; it is also called pooled fund. It is mostly used in a retirement plan such as 401K or life insurance investment products such as VULs.

An investment portfolio is an investment collection/account which consists of investment securities and funds. 

For each asset (class) in a portfolio, a target allocation is a pre-determined percentage for the asset’s allocation in the portfolio.

Moder portfolio theory (MPT) is a portfolio construction theory that tries to maximize returns while minimizing risks by investing in an array of diversified assets with proper percentage allocations. It is widely practiced in the investment industry. Several of its creators won a Nobel Prize because of the theory. 

A strategic asset allocation (SAA) is an asset allocation which is decided based on the investment policy, usually determined based on various factors including return expectation and risk tolerance. Strategic  asset allocation generally adheres to this pre determined allocation mix for a long period of time, unless some major events such as life events like retirement happen. The only change during this period is the asset rebalance, which tends to bring the allocation back to the pre-determined allocation mix. It is thus sometimes called buy and hold. 

Tactical Asset Allocation (TAA) is an asset allocation method that could dynamically change the asset mix  based on short and intermediate term’s economic conditions in order to capitalize on investment opportunities. It is a moderately active strategy since the overall strategic asset mix is returned to or adhered to when short-term opportunities have been exploited.

Mean Variance Optimization (MVO) is a portfolio optimization method that tries to derive optimal solutions to maximize return while minimizing standard deviation, commonly known as risk. 

An efficient frontier is a set of solutions from mean variance optimization that are optimal.

A asset correlation is usually a number between -1 to 1 that expresses the amount of similarity or dissimilarity in behavior between two asset classes. A -1 correlation means the two assets are completely inversely related while a 1 correlation means a perfect correlation. 0 means no correlation. In general, one would try to invest in asset classes that are relatively uncorrelated and that have reasonable expected returns. 

A investment plan consists of a list of available investment choices and the pre configured model portfolios for the MyPlanIQ’s investment strategies. The investment choices are the mutual funds, commingled pooled funds, Separate Managed Accounts (SMAs) and trusts. MyPlanIQ collects a plan’s investment choices based on public disclosed information and users’ input (your input could help to make a plan up to date as some of the choices could have been changed since the last disclosure that is usually several months or even a year earlier). In many cases, these funds or trusts could be found in MyPlanIQ’database. In the event of no such funds in MyPlanIQ’database, substitute mutual funds or even the benchmark funds of the asset classes for the missing funds are used as proxies. In such cases, the performance of the model portfolios (including the customized model portfolios) is approximate as those substitutes are not the exact investments in your plan.

The other important information for the investment choices are the redemption limits. Usually, a fund or a trust has a pre set minimum holding period. If a fund is sold within a period shorter than these redemption periods (limits), redemption fees are charged. To avoid the redemption fees, MyPlanIQ strategies will keep the funds for at least the redemption limits. In MyPlanIQ, the redemption limits are represented as a number of months. For example, a fund PTTRX (PIMCO Total Return Instl) in Microsoft 401K Plan has a redemption limit 3, that would mean PTTRX will be held for at least 3 months after its purchase. By default, 3 month redemption limit is used for each fund other than money market fund (which is represented by a unique CASH symbol).

MyPlanIQ applies proven quantitative strategies to each plan. Three model portfolios for each strategy in this plan are created and monitored daily. These three model portfolios have pre-configured risk tolerance representing conservative, moderate and growth.

My 401K has become 201K since the financial crisis. How would the MyPlanIQ’ investment strategies be different?

MyPlanIQ’investment strategies are based on time proven investment principles:

• Asset Allocation: this is the pillar of all of the investment strategies provided by MyPlanIQ. Modern Portfolio Theory (MPT), a well recognized investment theory, calls for properly allocating capital into a diversified array of assets. The key factors in asset allocation are diversification and proper asset allocation.
• Risk Management: the risk tolerance and growth expectation are fully incorporated in a customized portfolio. Furthermore, all of the strategies other than Strategic Asset Allocation dynamically re-allocate capital based on the asset trends or smart money managers’ outlook. By limiting risky assets (such as stocks, REITs and commodities) exposure and tactically re-allocating, loss of capital is controlled.
• Well Researched Results: The strategies are based on academic and practical algorithms that have been used in institutions and wealth management. Based on the back test results, their risk adjusted performance has been outstanding in the past ten years that span two severe bear markets. Please refer to the Strategies page and individual strategy page to better understand the principles behind them. Moreover, the preconfigured model portfolios in each plan are good starting points to get up to date information for each strategy.
• Advanced Fund Selections: In addition to the asset allocation strategies, a proprietary fund selection algorithm is incorporated into each strategy to achieve better results.
• Systematic and Consistent Action Plan: Precise and timely investment process is the key to long term investment success. In addition to the sound strategies, MyPlanIQ strives to provide investors a precise and consistent process.

Finally, users are reminded that the past performance of any strategy does not guarantee its future performance. Please read MyPlanIQ’s Terms of Use and make sure you understand the risk of investment.

A risk profile is your personal risk aversion number: intuitively, the higher the risk profile, the more risk averse you are. In MyPlanIQ, the risk profile number is used to be the target fixed income asset allocation percentage. For example, if your risk profile is 28 which represents in your customized model portfolios, the percentage of the portfolio allocated to fixed income assets is 28%.

MyPlanIQ classifies all investment assets into two major categories: fixed income and risky assets. Fixed income assets include

• Government bonds: short, intermediate and long term treasury bonds and GNMA.
• Investment grade bonds: short, intermediate and long term investment corporate bonds.
• International bonds: sovereign and international corporate investment grade bonds.
• Cash and Cash equivalent: Money markets, short term and stable funds.

Risky assets include

• Equities (stocks): US, international and emerging market stocks.
• REITs: US and international Real Estate Investment Trusts.
• Commodities: Industrial Metals, Gold, Oil, Agricultural, etc..
• High yield (Junk) bonds, convertibles and preferred: Low grade corporate bonds.
• Asset allocation funds: we classify any asset allocation funds such as moderate allocation into risky assets.

The model portfolios in a plan are pre-configured for three levels of risk tolerance: conservative, moderate and growth. They are generic. The customized model portfolios you generate through the Customize Model Portfolio process are tailored to your own specific risk profile that is derived from your expected retirement age and personal risk tolerance. Users should mirror their personal portfolios with the customized model portfolios, if it is possible. However, you could also opt to mirror a pre-configured model portfolio.

If you could not find your plan, please send us an email with your plan’s investment choice information. You could find investment choice information in your online account (most likely in a rebalance tab where it lists the funds available in the plan or a performance report sheet) or from the information your human resource office provides. A simple list of all funds (or preferably their symbols) would be the best. In addition, please provide us the redemption limit (or so called minimum holding period) for each fund if there is any such information (usually found out in each fund’s prospectus). We will use default 3 month redemption limit for each fund (other than money market or stable funds) if no such information is available.

Once we receive your information, it usually takes us one working day to setup your plan.

We rely on users like you to keep plan information up to date and precise. Please send email to [email protected] .

We suggest the following steps:

1. Go through the Get Started process to create your own risk profile and customized model portfolios.
2. Follow the model portfolios for an extended period of time. Make yourself comfortable and understand more thoroughly on the strategies and the process.
3. Start to mirror your personal portfolio with the customized portfolio.

The other way is to create a personal portfolio based on your current portfolio in a plan and go through a migration period. See the question ‘How could I migrate gradually?’

MyPlanIQ maintains a comprehensive mutual fund and ETF database. However, for some commingled funds, trusts and SMAs (Separate Managed Accounts), we do not have information thus, a work around is to use a mutual fund, an ETF or an index as its substitute. In the event we could not find a suitable fund or index for substitution, we will use the benchmark for the asset class to which the investment choice belongs (if the asset class information is available) instead. If we could not determine the asset class, we will opt not to use this investment choice at all.

Even though if a substitute is used, we believe the model portfolios could still track the actual portfolio closely: according to a study by Gary Brinson, Randolph Hood and Gilbert Beebower , asset allocation strategies is responsible for over 90% of variations in portfolio performance. On a portfolio page, we have shown both suggested holdings (using the real names of the investment choices) and the actual holdings (using the actual substitutes (if any)) that represents the actual holding in such a portfolio.

In addition to the fund substitution issue, actual fees charged in your real personal portfolio and the difference of fee charges on the funds used could also cause the difference of the performance between your personal portfolio and a model portfolio you choose to mirror.

We suggest you follow model portfolios and their strategies for a period of time to have a better understanding on those strategies. In fact, this is one of the key factors for you to achieve better investment results. Without fully understanding and thus having confidence in the underlying strategies, one could easily deviate from the strategies during a period of time when the strategies under perform. Bear in mind that investing is a long term process and there is no strategy that could consistently perform well at any given time. It is thus important to stick to a strategy in a well planned out portfolio with acceptable risk.

Please refer to Strategies and each individual strategy page for more information. In general, there is no definite answer on what strategies to choose. However, we believe there is a major difference between Strategic Asset Allocation: and the other strategies provided by MyPlanIQ. The Strategic Asset Allocation strategy works best during a major bull market. In the coming decade, we concur with PIMCO’s opinion that the US (and the global) economics will enter into a ‘new normal’ period during which economic growth will be uneven and slow. In such a period, it is more appropriate to adhere to a proven tactical asset allocation strategy such as Tactical Asset Allocation. Investors are encouraged to compare performances of these strategies to have a better understanding.

If you have a large portfolio or several portfolios, you could further diversify by choosing more than one strategy. This practice is sometimes called the Core Satellite portfolio. MyPlanIQ will release a strategy to allow investors to adopt such a multi-strategy approach in the near future.

All of MyPlanIQ strategies are based on diversified large assets such as US equity market, US fixed income market etc. Unless there are an extremely large number of investors adopting the same strategy, it is hard to affect a major market (for example, the whole US equity market).

At MyPlanIQ, we understand and fully support a gradual migration instead of a sudden shift of your current investments. We believe understanding and getting comfortable with the strategies you are going to adopt are the utmost factors for your success (thus our success too). We provide a migration path that

1. You first create a personal portfolio that is mirroring your real personal portfolio.
2. We will perform portfolio checkup to help you identify three key issues: risk, asset allocation/diversification and fund selections.
3. We will use your chosen asset allocation and give you rebalancing instructions which include what funds you should switch to. The funds are chosen based on our fund selection process. We will keep a model portfolio that has the same asset allocation as your personal portfolio and show you how much difference our fund selection method will make. Furthermore, another model portfolio with the same risk as your personal portfolio is created. This model portfolio employs tactical asset allocation strategy. You could compare the performance and risk, again, in an extended period of time.

Should I make a onetime change or gradual change?
That depends your time, your personal outlook of the market and your current portfolio situation. In general, we advocate a gradual change. One way to do that is through so called ‘Dollar Cost Average'(DCA) that changes your portfolio a piece at a time. However, there are situations that call for a clean change. An example is that your current portfolio has a heavy allocation on risky assets (such as stocks) that is way beyond your acceptable target allocation. In such a situation, a clean change is a reasonable approach.

There is no limit for you to create several customized model portfolios for various plans.

In general, try to utilize taxable accounts for buy and hold strategic asset allocation portfolios and use a tax-deferred account such as 401(k) or IRA for more active tactical asset allocation strategies.

Similarly, invest in a tax deferred account for more tax sensitive investments such as fixed income bonds.