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simonapper (< 20)

Nobody Cares About Your Retirement More than You Do



March 30, 2011 – Comments (0) | RELATED TICKERS: VTI , BND , VEU

There has been a lot of discussion about the rate of return from the major retirement plans such as Calpers and New York City and State. These are huge funds with, one would assume, experts making the decisions, and yet the average annual returns over the last decade range from 2.46% to 3.75%.

For those of us with 401K the situation is better but still not great. In a study of over 800 mainly retirement plans, the majority of plans supported only three asset classes which is going to have a significant impact on the potential returns for the participant.

Asset Classes     %age of plans

Three                         59

Four                          23

Five                           14

Six                              4

Research has shown that diversification -- using more asset classes is key to achieving good risk adjusted returns and the fact that the majority of these plans have only three asset classes is not good. To prove the point, I created two very simple portfolios: 

                                                                         Average Annual Returns

 Portfolio           Funds                                              Over five years 

Simple Three   BND, VTI, VEU                                           4%

Simple Six     BND, VTI, VEU, VWO, DBC, VNQ                 7%


I chose ETFs as they are simple, flexible and low cost. I picked some of the most popular ETFs but the results are similar with other ETFs or index mutual funds. 

So using a very simple portfolio with 40% in fixed income and a buy and hold strategy I can beat the big retirement plans. In addition, if I use a more sophisticated strategy (tactical asset allocation), I can push that still further.

The bottom line is that you have to be involved in your retirement investments because nobody cares about your retirement as much as you do.  


I have no relationship with the providers of any of the ETFs

I have a long position in DBC 

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