Investment Strategy Calls for Frequent Action Reports

March 6, 2013 ( – An increase in defined contribution (DC) plan contributions alone cannot help attain retirement income security if employees have portfolios with traditional or formulaic asset allocation, a source contends.

Mark Berube, senior vice president at Compass Investors LLC, suggests an Adaptive Asset Allocation (AAA) strategy, which he said can provide double-digit returns to participants. AAA is not a type of fund or in-plan investment option—it’s a risk management asset allocation strategy that can be immediately applied to any existing retirement plan to help participants optimize performance while minimizing risk.   

In contrast to the hands-off mindset of traditional approaches, AAA calls for constant vigilance and an “interventionist” attitude about retirement savings. 

AAA models researched by the Compass Institute and back-tested between 1997 and 2012 showed an average performance of 12.4% per year, as compared with the best performing Formulaic Asset Allocation Fund, which yielded 6.5%, according to the white paper by Timothy Scherman for the Compass Institute, “Breaking Bad for Boomers.”

Berube told PLANSPONSOR his company uses AAA by monitoring the market on a daily basis and sending action reports to investors every five weeks—the amount of time Berube said it takes a trend to develop. Berube said he thinks many plan sponsors and providers are unaware of the AAA strategy.   

Investors should be in mutual funds that reward risk during an up market, but they must get out of them in a timely manner when the market changes, he said. “We don’t just stay there and get crushed,” he added. “We don’t change for the sake of changing.”   

By using an AAA strategy, investors have a better chance of not outliving their money. “Living longer requires higher investment returns,” Berube said. “The common [retirement income replacement rate] of 60% to 80% … just doesn’t work.”