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Plan rating is a quick and easy way to get a read on a plan and what a portfolio built from the funds in the plan can deliver. This is not the whole story but is a rapid means of making an assessment.

In this article we are comparing two sets of plans to expose what plan rating gives you and contrast it with backtested results.

1. News Corp (NASDAQ:NWS) vs. New York Times (NYSE:NYT) have been separately reviewed and the purpose here is to compare their plan profile and compare the plan ranking.

As of October 26, 2010 News Corp's plan and ratings summary is:

Asset Class News Corp Funds New York Times Funds
U.S. Equity Excluding Company Stock 3 6
International Equity 2 2
Emerging Markets 0 1
Fixed Income Including Money Market 2 2
Target Date Funds 0 11

Plan Rating Attribute News Corp New York Times
Diversification 4% 64%
Fund Quality 49% 90%
Portfolio Building 65% 31%
Overall Rating 42% 59%

Performance table (as of October 29, 2010)

Currently, asset classes in US Equity ( SPY , VTI ) , Foreign Equity ( EFA , VEU ) and Fixed Income ( AGG , BND ) are doing relatively well. These asset

2. TD Ameritrade (NYSE:AMTD) vs. Vanguard ETFs have been separately reviewed and the purpose here is to compare their plan profile and compare the plan ranking.

Asset Class TDA Funds Vanguard Funds
U.S. Equity Excluding Company Stock 31 33
International Equity 14 6
Emerging Markets 11 1
Real Estate 4 1
Commodities 6 1
Sectors 3 9
Fixed Income Including Money Market 32 11

Plan Attribute TDA Vanguard
Diversification 95% 57%
Fund Quality 26% 56%
Portfolio Building 92% 51%
Overall Rating 73% 54%

Performance chart (as of October 25, 2010):

Performance table (as of October 25, 2010):

Portfolio Name 1Yr AR 1Yr Sharpe 3Yr AR 3Yr Sharpe 5Yr AR 5Yr Sharpe
Vanguard 62 Tactical Asset Allocation Moderate 14% 93% 5% 33% 13% 81%
Vanguard 62 Strategic Asset Allocation Moderate 17% 126% 2% 5% 8% 42%
TD Ameritrade Commission Free ETFs Tactical Asset Allocation Moderate 14% 96% 13% 84% 20% 128%
TD Ameritrade Commission Free ETFs Strategic Asset Allocation Moderate 10% 89% -1% -10% 8% 44%

If we now compare ratings and five year performance we get the following graph:

If we now normalize both sides:

We can see that there is reasonable correlation between the plan rating and the five year return number.

Note that this is not an exact science and there are many exceptions. In addition, this is not the whole story, just a means of assessing a plan and uncovering where there may be weaknesses in the long term.

MyPlanIQ continues to improve the plan rating which is accessible to anybody at no cost.

Disclosure: No positions

Source: Plan Ratings vs. ETF Portfolio Returns, Part 3