MICROSOFT 401K 

All investment options are diversified mutual funds except for Microsoft stock. Retirement plan information has been provided by Microsoft employees.  

 

Traditional asset allocation theory recommends investing in multiple asset classes of unrelated investment types, such as equities, bonds and cash.

 

Typical asset allocation models are presented here for your reference.

 

                            Aggressive               Moderate            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 6^th…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…”

 

However, in the 2008 market all asset classes, except cash, were highly correlated and declined in value. This list shows which investment choices have been the strongest performers recently, relative to the choices available within the plan. (Lifestyle options are excluded since they are date based re-allocation portfolios without regard to economic or market environments).

 

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 quarterly for new ranking updates that may indicate a change in investment selection.

 

Whenever a plan does not provide a money market or stable value choice for use, the shortest term fixed income option is the recommended alternative.

 

Diversification is still good process. 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.

 

CLICK HERE to see how asset rankings have rotated through previous quarters and exposure to the 2008 market melt-down could have been avoided.

   

Your choices are limited to the investments approved by your company plan trustees. 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.

The "safe haven" is the Money Market for cash balances. Reviewing changes in relative strength from the end of 2007 clearly shows the shift of capital away from stocks to bonds and money market early in 2008. If an employee had changed the 401K election in concert with the changes in relative strength, the 2008 loss of account value would have been mitigated. Further, the changing attractiveness of returning to equities would have been identified by mid-year justifying a recommitment to one or more of the equity options.

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.

Updated on 07/02/2010

CLICK HERE to see how market rotation would have reduced the impact on your account from the 2008 financial crisis. 

It is our opinion that investing success is more likely when you are not emotionally attached 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 maintained an objective view of their stocks and willing to let go of them in the midst of market decline.

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 Microsoft or of its retirement plans.

RECENT COMMENTARY

FREE REPORT: DEBT CRISIS