Products May 2, 2001

Advice Recommendations Fare Well in Volatile Market

February 5, 2001 (PLANSPONSOR.com) - Plan participants would have done well to heed the counsel of online advice providers last year, according to the second release of the CHALK 401(k) Advisory Index.
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Investment advice selections also resulted in very different results for the portfolios of six different hypothetical investors, in sharp contrast to the relatively narrow ranges exhibited at June 30.

A moderate-risk investor aged 50-55 could have seen their portfolio rise 3.23% last year, based on the average portfolio mix suggestions of nine online investment advice providers. Even an aggressive investor with a long investing time horizon could have lost just 3.31% in 2000, compared with the S&P 500’s 10% drop.

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Profiled Portfolios

The Advisory Index ( www.chalk401k.com ) is based on asset allocations for Age Range, Risk Characteristics (moderate or aggressive) and asset allocation choices sometimes available to participants in a 401(k) plan. The Index is a measurement tool for 401(k) plan participants only.

The Index rebalances on January 1st and July 1st.

The Advisory Index returns and risk profiles for the year ended December 31, 2000 were:

Style/Age

21-30

37-44

50-55

Moderate

-2.02%

0.20%

3.23%

Aggressive

-3.31%

-0.98%

1.29%

While the numbers themselves offer no perspective on the relative merits of any one advice provider, they do provide a sense of the type returns typical participant asset allocation models might experience.

“Pure” Advice

Index results were based on the recommendations of investment advice firms that provided asset allocations among 25 active or passive investment styles prior to the measurement period. Each participating firm delivers objective investment advice via either a PC based system or the Internet.

The Advisory Index is comprised of “pure” advice providers, according to Steff Chalk, President of the Chalk 401(k) Advisory Board, and creator of the 401(k). No firms that “sell” or “manufacture” investment products are considered for their asset allocations.

First Blush

The Advisory Index’s first publication also revealed the benefits of professional investment advice, though not in as dramatic a fashion. For the six months ending June 30, the average portfolio returns for hypothetical investors rose from 1.58% to 2.01%, compared with a 1% loss for the S&P 500.

Chalk told PLANSPONSOR.com: “The 401(k) Advisory Index provides Plan Participants with a basis for gauging the success of their own asset allocation decision over the last year. Last years markets drove home two points – Diversification and Asset Allocation. This is not breaking news, but Plan Participants should regularly review their asset allocation to determine when rebalancing makes sense.”

A research grant from Northern Kentucky University was awarded to Chalk to develop and publish the semi-annual 401(k) Index.

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