Asset Allocation for Better Performance: 401k Investment Strategy Performance Comparison Put Dynamic Asset Allocation on the Top

401(k), 403(b) and other defined contribution plans soon will become people's major retirement income resource. People are encouraged to contribute their retirement plan as much as IRS's limit amount allowed each year. While these retirement plans provide tax-defer benefits, their performance over time, especially during last ten years, are often unsatisfactory. Instead of growing in values, many people's retirement portfolios are worth less than what have contributed.

Let's take Wal-Mart Stores Corp's 401k and Profit-Sharing plan as an example to demonstrate how people's 401k retirement plan performed during ten year period of 2000 - 2010. We assume that people use the three popular approaches that often are recommended by financial professionals. These three strategies are index fund, target-date funds and automatic rebalancing.

Within Wal-Mart's 401k plan, there is one fund DWS Equity 500 Index (BTIIX) which is an S&P500 index fund. Since there are not many target-date funds available ten years ago, we use Wells Fargo Advantage DJ Target 2040 B (SLPBX) in our demonstration. To illustrate the automatic rebalancing strategy, we use the following three mutual funds in Wal-Mart's 401k plan and these three funds were started more than ten years ago.

PIMCO Total Return Institutional (Intermediate-Term Bond) - PTTRX

Franklin Small-Mid Cap Growth A (Mid-Cap Growth) - FRSGX

AIM International Growth A (Foreign Large Growth) - AIIEX

As you can see from the chart below that, of three popular investment strategies, only automatic rebalancing method yields some acceptable return within the ten year period from 2000 - 2010. Index fund and target-date fund, along with S&P 500 index, all performed badly.

Following these investment principles, Analytic401k LLC researched and developed some specified financial models targeting retirement plan-like portfolios and we call the methodology dynamic asset allocation. The chart below shows what the same portfolio's performance would look like if Analytic401k's strategy and system had been applied to Wal-Mart's 40k plan.

Finally, the annulized returns of all these investment strategies, along with S&P 500 index and average 5-year CD rate, are shown below for your conveinence.