The Plan is proud to offer a high quality, low cost and broadly diversified investment menu.
Please find the following Q & A to better understand our approach:
Index investing provides three primary benefits; low cost, broad diversification and predicable returns. The index options in the Plan are all low cost solutions by the industry’s leader in index investing, Vanguard Investments. Please find the Plan’s Investment Performance and Expenses.
Vanguard Target Retirement Funds invest in several low-cost index funds to create a broadly diversified mix of stocks and bonds. The year of a Target Retirement Fund’s name is the approximate year in which an investor in the fund expects to retire. To reduce risk as the target date approaches, the investment manager will gradually decrease the fund’s stock holdings and increase its bond allocation.
As an investment fiduciary, our priorities are to offer well diversified options across different asset classes, provide low investment expenses, and create a menu that facilitates positive participant outcomes. Studies have shown that asset allocation drive the vast majority of a portfolio return.
No, diversification is achieved based on the holdings within the portfolio. All of the Vanguard funds are based on broad indices, and there is essentially no discretion on the part of the asset manager.
No, ironically just the opposite is true. By owning a broadly diversified index fund at a minimum cost, investors will usually outperform most actively managed funds. For example, according to the SPIVA US Scorecard (data as of June 30, 2017) the majority of US Large-Cap equity funds underperform their benchmark; 1yr 57%, 5yr 82% 10yr 85%.
While this is a popular notion, the data does not reflect this narrative. According to the same SPIVA Scorecard, US Small-Cap equity funds underperform their benchmark; 1yr 60%, 5yr 94%, 10yr 94%. For International equity funds the results were 1yr 78%, 5yr 72% 10yr 80%.
The argument for indexing is enhanced when examining portfolios rather than just funds. According to A Case for Index Fund Portfolios (Ferri & Benke 2013) the researchers found over the longest period studied (1997-2012) the actively managed portfolios underperformed 83% of the time versus an index based portfolio available to individual investors.
A stable value fund consists of a portfolio of low risk and return fixed income securities that are insulated from interest rate movements by insurance contracts. Stable value funds are generally only available in defined contribution retirement plans, and may outperform money market funds.