Costco 401K
All investment options are diversified mutual funds except Costco stock.
Matrix updated for 03/30/2012
Traditional asset allocation theory recommends investing in multiple asset classes of unrelated investment types, such as equities, bonds and cash. Using Modern Portfolio Theory we provide the following traditional asset allocation information for you to construct your portfolio. Use your own perception of your risk tolerance, other assets and income sources and your proximity to retirement to select an allocation that is appropriate for your circumstances.
Aggressive Balanced Conservative
CAUTION: USE "PIE CHART ALLOCATION" AT YOUR OWN RISK. THE PROCESS IS NOT DESIGNED TO PROTECT YOU FROM DOWNSIDE MARKET RISK. IT IS THE WAY 401K PORTFOLIOS ARE TRADITIONALLY CONSTRUCTED. KEEP READING FOR A BETTER UNDERSTANDING.
“We’ve been on a roller coaster ride in the financial system and the economy over the last 25 years. It’s going to continue. Now, it’s going to be a roller coaster on steroids. Things can go wrong like it did…May 6th…in the US stock market. ...People need tools to navigate through this. Buy-and-Hold is gone as a basic investment philosophy. You have to watch the financial flows and take some money off the table when liquidity starts to go the other way.” - J.A. Boeckh
Significant insights were revealed in January 2010 by one of the leading proponents of index investing and an icon of the academic community – Ibbotson Associates’ president, Peng Chen. In an interview with Morningstar discussing Modern Portfolio Theory and its dismal 2008 performance in protecting accounts, Mr. Chen said:
“…we also realized that one of the traditional measures in modern portfolio theory, in particular on the risk side, standard deviation, does not work very well…”
While past performance is not a predictor of future returns, it may provide you with some reassurance that your current investment selections remain within favored market segments.
Any employee using this relative strength listing as a tool for allocating a retirement portfolio should check at least quarterly for new ranking updates that may indicate a change in investment selection.
Investor Resources, Inc.'s (IRI) investment committee's view of the markets changes over time with changes in the relative strength of sectors and asset classes. Periodically, IRI's investment committee may favor domestic and international equities over fixed income or favor small company growth over large companies or value.
We agree with behavioral finance research that investing success is more likely when you are not emotionally tied to your investments. Consider how much pain would have been avoided in the lives of those who were committed to Enron, Tyco, JD Uniphase, GM or Chrysler if they had an objective relationship with their stocks.
Diversification is still good process, however, diversification neither assures a profit nor eliminates the risk of experiencing investment losses. We do not recommend investing in less than five of the available options as long as they rank higher than the money market. If money market is ranked #3, it implies 60% money market and 20% in each of the two higher ranked assets.
Fundamentally, we do not recommend investing in assets ranked below money market. Preserve your cash until the assets once again establish a positive bias in their returns and prices.
Investment options are ranked by the previous ten week’s relative strength.
CLICK HERE to see how asset rankings have changed through previous quarters and exposure to the 2008 market melt-down could have been avoided by implementing an asset rotation discipline. It is our opinion that investing success is more likely when you are not emotionally attached to investments. Consider how much pain would have been avoided in the lives of those who had a "buy and hold" commitment to Enron, Tyco, JD Uniphase, GM or Chrysler if they had maintained an objective view of their stocks and willing to let go of them in the midst of market decline.
We suggest you take the time to examine the history of the T. Rowe Price Target Date Funds in the Costco 401K. Returns are inconsistent with marketing material promoting the benefits of managing to a target date. The same inconsistencies occur within the Federal Employee TSP plan and with VanguardTarget Date Funds.
THERE ARE HIDDEN RISKS IN TARGET DATE FUNDS. This is especially important to understand and manage in the five to ten years before and after retirement. A significant downturn in capital markets can materially change your retirement life style.
Your choices are limited to the investments approved by your company plan trustees. Your investments are custodied in an account which you can access at www.rps.troweprice.com. We believe the asset listing was obtained from reliable sources. If there is an update to the available investment listing, please contact us at 800-317-9119 or Info@InvestorResourcesInc.com.
DISCLAIMER:
This information is provided by Investor Resources, Inc. , a registered investment advisor, and is believed to be from reliable sources, but no guarantee is made as to accuracy or completeness. The investment securities and strategies discussed are not necessarily suitable for all investors. Recommendations are of a general nature, not based on knowledge of any individual's specific needs or circumstances, and there is no intent to provide individual investment advisory, supervisory or management services. Investor Resources, Inc. is not an authorized representative of Costco or of its retirement plans.
Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment will either be suitable or profitable for a client or prospective client’s investment portfolio. Historical performance results for investment indices and/or categories generally do not reflect the deduction of transaction and/or custodial charges, the deduction of an investment management fee, nor the impact of taxes, the incurrence of which would have the effect of decreasing historical performance results.
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