For employees looking for a simple investment solution, the Co-op 401(k) Plan offers five model portfolios that fit a range of risk tolerance profiles. These portfolios are predetermined mixes of several funds offered under the plan. Participants can identify the model that is best suited for their situation using the Retirement Toolbox at millimanbenefits.com or Milliman’s Your Investor Profile worksheet, included with their enrollment materials.
Co-op 401(k) Plan model portfolio fund returns as of 5/31/2010
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Model Portfolio*
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Underlying Funds
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3-month
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1-year
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5-year
|
|
Conservative
|
30% stable asset
20% bond
40% TIPS
4% index stock
2% small-cap index
4% international blend
|
1.51%
|
9.12%
|
4.97%
|
|
Moderately conservative
|
20% stable asset
20% bond
30% TIPS
11% index stock
7% small-cap index
12% international blend
|
0.96%
|
12.12%
|
4.59%
|
|
Moderate
|
10% stable asset
20% bond
20% TIPS
18% index stock
12% small-cap index
20% international blend
|
0.40%
|
15.13%
|
4.21%
|
|
Moderately aggressive
|
20% bond
10% TIPS
25% index stock
17% small-cap index
28% international blend
|
-0.15%
|
18.13%
|
3.83%
|
|
Aggressive
|
5% stable asset
34% index stock
23% small-cap index
38% international blend
|
-0.97%
|
20.34%
|
2.85%
|
Why choose a model?
Model portfolios offer instant and complete diversification for the individual investor saving for retirement or other long-term goals. Diversification is a very important concept when investing because the year-to-year returns of asset classes carry different degrees of risk. Returns on investments vary each year and, of course, can include negative returns in certain years. Instead of trying to time the market, long-term investors are best suited by diversification. Model portfolios provide a simple investment option that limits the downside risk of being invested in a single asset class at the wrong time.
Why are some funds used and others not used?
There are five broad asset classes that are consistently recognized by the investment community. They are money market/stable asset, bonds, large company stocks, small company stocks, and international stocks. Diversification is achieved when each asset class is represented in a portfolio. The plan offers more than one fund in each asset class so investing in multiple funds that represent the same asset class does not necessarily make a properly diversified portfolio. The core underlying funds of the model portfolios are the low-cost market-matching funds that represent each asset class appropriately.
How were the portfolios developed?
Each portfolio has an expected return that is determined by reviewing 30 years of return data for each asset class. By understanding how the asset classes have performed relative to one another, Agri-Invest was able to create a portfolio that provides the highest expected return for a given level of risk. The Models offset the risk of one asset class by combining investments with other asset classes, which tend to go up and down in value at different times. The blended result is much less volatile than a singular investment. Each investor will have a different risk/return profile, but the five model portfolio options should be sufficient for most investors.
Are the portfolios for the Co-op 401(k) Plan any different than portfolios that might be developed for other organizations?
Yes. Many employers offer model portfolios or lifestyle funds as investment options in their 401(k) plans. Although model portfolios may vary from one to the other, they generally attempt to offer more complete diversification to investors. The models may be constructed similarly, however they are often not alike. Lifestyle funds are constructed using only one factor (generally age) in determining an investor’s risk tolerance. Agri-Invest also considered other factors in developing the models, which is why we believe model portfolios are better for investors.
How does Agri-Invest review the portfolios?
The models were developed using 30 years of data to support the allocations to each asset class. Agri-Invest continually updates the return data each quarter and make adjustments to the model portfolios when deemed appropriate. Generally any changes made would be quite small given the amount of data examined. All changes are subject to approval by the Co-op 401(k) Plan Fiduciary Board.
How do the rates of return for the portfolios compare with other investments?
The rates of return for the models will be similar to benchmarks constructed from broad market indices like the S&P 500, representing large company stocks, blended together in percentages similar to those found in the model portfolios. The bond allocation in the model will behave like the broad bond market. The performance of the model will generally be less volatile than the individual mutual funds in the plan because of the diversification. These model portfolios will generally perform better than similar balanced funds, because the internal expenses of the underlying mutual funds are among the lowest in the industry.
