Retirement investing is a long term process. This report reviews The Goldman Sachs 401(k) Plan . We will discuss the investment choices and present the plan rating by MyPlanIQ. Current economic and market conditions are discussed in the context of the investment portfolios in the plan. We will then show how investors in The Goldman Sachs 401(k) Plan can achieve reasonable investment results using asset allocation strategies.
Plan Review and Rating
As one of the largest investment banks in the world, Goldman Sachs (GS) does give its employees ample diversification opportunities. The plan consists of 36 funds. These funds enable participants to gain exposure to 6 major assets: US Equity, Foreign Equity, Commodity, Emerging Market Equity, REITs, Fixed Income.
As of Jun 2, 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 great (100%)
Fund Quality -- Rated as below average (14%)
Portfolio Building -- Rated as average (52%)
Overall Rating: average (55%)
It is a bit surprising that the plan's fund quality is rated below average. In the plan, other than the low cost index funds, it provides many Goldman Sachs funds such as Goldman Sachs Asset Management L.P./Structured US Equity Fund (GSELX). This could possibly help your own fund business with the expense of lower qualities. We don't know what cost the plan is charged for these funds.
Current Economic and Market Conditions
As we are clearly entering a seasonally weak period for risk assets, global economies have clearly slowed down. Recently released Case-Shiller housing index showed that the U.S. is now in a double dip state for housing prices. Unemployment rate has been stuck at 9% level. Additional indicators such as conference board consumer confidence index and Chicago ISM index are all pointing to a slow down in the summer season.
Amid a string of bad economic news, risk assets have come down a bit, though they are still ranked high at the moment. Long term treasury bonds, however, have shot up in the anticipation of weakened economy. The following table shows the major asset class ranking in terms of their momentum.
| Assets Class | Symbols | 05/27 Trend Score | 05/20 Trend Score | Direction |
|---|---|---|---|---|
| International REITs | RWX | 11.77% | 10.82% | ^ |
| Commodities | DBC | 10.84% | 10.32% | ^ |
| US Equity REITs | VNQ | 10.77% | 10.41% | ^ |
| Gold | GLD | 9.42% | 10.06% | v |
| Emerging Market Stks | VWO | 8.56% | 6.72% | ^ |
| US Stocks | VTI | 8.29% | 8.23% | ^ |
| International Developed Stks | EFA | 6.77% | 5.23% | ^ |
| US High Yield Bonds | JNK | 6.37% | 6.37% | v |
| International Treasury Bonds | BWX | 5.96% | 4.66% | ^ |
| Frontier Market Stks | FRN | 4.05% | 4.27% | v |
| Emerging Mkt Bonds | PCY | 3.57% | 4.27% | v |
| Intermediate Treasuries | IEF | 2.71% | 2.39% | ^ |
| US Credit Bonds | CFT | 2.5% | 2.81% | v |
| Municipal Bonds | MUB | 2.13% | 2.0% | ^ |
| Total US Bonds | BND | 1.99% | 1.92% | ^ |
| Mortgage Back Bonds | MBB | 1.75% | 1.8% | v |
| Treasury Bills | SHV | 0.07% | 0.02% | ^ |
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 6 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
Commodity: DBC
Emerging Market Equity: EEM or VWO
REITs: IYR or VNQ or ICF
Fixed Income: AGG or BND
Performance chart (as of Jun 2, 2011)
Performance table (as of Jun 2, 2011)
| Portfolio Name | 1Yr AR | 1Yr Sharpe | 3Yr AR | 3Yr Sharpe | 5Yr AR | 5Yr Sharpe |
|---|---|---|---|---|---|---|
| The Goldman Sachs 401(k) Plan Tactical Asset Allocation Moderate | 12% | 113% | 9% | 70% | 13% | 98% |
| The Goldman Sachs 401(k) Plan Strategic Asset Allocation Moderate | 17% | 214% | 1% | 5% | 5% | 30% |
| Six Core Asset ETF Benchmark Tactical Asset Allocation Moderate | 14% | 141% | 8% | 64% | 13% | 92% |
| Six Core Asset ETF Benchmark Strategic Asset Allocation Moderate | 20% | 188% | 3% | 16% | 7% | 36% |
From the above table, one can see that the plan is comparable with six core asset benchmark.
To summarize, participants in The Goldman Sachs 401(k) Plan can achieve very reasonable investment returns by adopting asset allocation strategies that are tailored to their risk profiles. This plan provides adquate diversification but can be improved by working on fund qualities.
Symbols: GS, ^RUT, MLM, VTI, VEU, VWO, VNQ, DBC, BND, STLEX, SVSPX, VUSTX, VIGIX, VIVIX, VIMSX, SSEMX, VIPSX, STLAX, STLBX, WFBIX, STLCX, STLDX, STLFX, GMCFX, GSTGX, WACPX, GSELX, GCMAX, GSHTX, GSCGX, GSLAX, GSFIX, GGOIX, GREIX, QRAAX, PIGLX, SVRIX Exchange Tickers: (GS), (^RUT), (CASH), (MLM), (VTI), (VEU), (VWO), (VNQ), (DBC), (BND), (STLEX), (SVSPX), (VUSTX), (VIGIX), (VIVIX), (VIMSX), (SSEMX), (VIPSX), (STLAX), (STLBX), (WFBIX), (STLCX), (STLDX), (STLFX), (GMCFX), (GSTGX), (WACPX), (GSELX), (GCMAX), (GSHTX), (GSCGX), (GSLAX), (GSFIX), (GGOIX), (GREIX), (QRAAX), (PIGLX), (SVRIX)
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