Asset Allocation Review

Why does the most important fiduciary decision receive so little attention?

Academic studies have shown that approximately 90% of the variance in investment returns comes from the asset allocation decision. Selecting the appropriate number and types of asset classes offered in a retirement plan is a critical fiduciary duty. Given that pre-mixed asset allocation funds (target risk and target date) and stable value funds often represent over 50% of a 401(k) Plan’s assets, it is also essential for fiduciaries to monitor the asset allocations within each of these options. Ironically, these options typically receive little attention and frequently are incorrectly bench-marked.

Asset Allocation Check

1. Does your 401(k) Plan offer any options to help hedge against inflation?
2. Does your 401(k) Plan offer any equity options that don’t always march in step with the U.S. economy?
3. Does your 401(k) Plan offer an appropriate low risk option?
4. Does your 401(k) Plan offer participants asset allocation solutions that are well suited to their risk profile, needs and investment experience?
5. Target-date funds have substantial differences in assumptions and asset allocations. If your plan offers such a suite of funds, what is the impact of those assumptions and allocations compared to other available choices?

Weems & Robertson can help design an asset allocation policy that is customized to the risk/return profile of the Plan participants and minimizes fiduciary risk for the Plan fiduciaries.