This report reviews AMERICAN EXPRESS' RETIREMENT SAVINGS PLAN. We will discuss the investment choices and present the plan rating. Current economic and market conditions are discussed in the context of the investment portfolios in the plan. We will then show how participants in AMERICAN EXPRESS' RETIREMENT SAVINGS PLAN can achieve reasonable investment results using asset allocation strategies.
Plan Review and Rating
American Express Company (NYSE:AXP) provides charge and credit payment card products, and travel-related services worldwide. It offers a range of products and services, including charge and credit card products; expense management products and services; consumer and business travel services; stored value products, such as Travelers Cheques and prepaid products; network services; merchant acquisition, and merchant processing, point-of-sale, servicing and settlement, and marketing products and services for merchants; and fee services, including market and trend analyses along with related consulting services and customer loyalty and rewards programs. American Express was founded in 1850 and is headquartered in New York, New York.
AMERICAN EXPRESS' RETIREMENT SAVINGS PLAN consists of 24 funds. These funds enable participants to gain exposure to 4 major assets: US Equity, Foreign Equity, Emerging Market Equity, Fixed Income. The list of minor asset classes covered:
Diversified Emerging Mkts: EEM, GMM, PXH, DEM, SCHE
Foreign Large Blend: EFA, VEU, GWL, PFA
Foreign Large Value: EFV, PID, DWM
Foreign Small/mid Value: SCZ
Intermediate-term Bond: AGG, CIU, BIV, BND
Large Blend: IVV, IYY, IWV, VTI, VV, SPY, DLN, RSP, SCHX
Long-term Bond: CLY, LQD, BLV, VCLT
Mid-cap Blend: IJH, IWR, JKG, VO, MDY, EMM, PJG, DON, EZM, MVV
Small Blend: IJR, IWM, JKJ, VB, DSC, PJM, DES, SAA, UWM, SCHA
Us Equity: IVV, IYY, IWV, VTI, VV, SPY, DLN, RSP, SCHX
As of Dec 2, 2010, this plan investment choice is rated as Above Average based on our Plan Rating methodology, which measures the effectiveness of a plan's available investment funds. It has the following detailed ratings:
Diversification -- Rated as Average (61%)
Fund Quality -- Rated as Average (60%)
Portfolio Building -- Rated as Good (96%)
Overall Rating: Above Average (75%)
Current Economic and Market Conditions
We have experienced an uncertain 2010: plenty of worries on whether the US economy will climb out of the great recession and recover.
- The Federal Reserve embarked on Quantitative Easing II (QE2) to stimulate the economy.
- The housing market is still at its low but largely stabilized.
- The unemployment rate is stuck at 9%.
Americans continue to face an uncertain future, given (among others) the high unemployment rate, large federal and local government debts and global trade imbalance. With such an economic backdrop, the stock and debt markets are going to be volatile. Despite this, markets have been resilient and appear positioned to rebound.
In this market it is even more critical to properly diversify and respond market changes. We offer two asset allocation strategies: strategic and tactical asset allocation strategies (SAA and TAA for participants in AMERICAN EXPRESS RETIREMENT SAVINGS PLAN).
Strategic Asset Allocation is based on well known modern portfolio theory and its key features include: diversification, proper fund selection and periodically re-balancing.
Tactical Asset Allocation works on a diversified array of assets provided by funds in a plan and adjusts asset mixes based on market conditions such as asset price momentum utilized by TAA.
The chart and table below show the historical performance of moderate model portfolios employing strategic and tactical asset allocation strategies. For comparison purpose, we also include the moderate model portfolios of a typical 4 asset SIB (Simpler Is Better) plan. This SIB plan has the following candidate index funds and their ETFs equivalent:
Performance chart (as of Dec 2, 2010)
click to enlarge
Performance table (as of Dec 2, 2010)
|Portfolio Name||1Yr AR||1Yr Sharpe||3Yr AR||3Yr Sharpe||5Yr AR||5Yr Sharpe|
|AMERICAN EXPRESS RETIREMENT SAVINGS PLAN Tactical Asset Allocation Moderate||5%||50%||10%||100%||14%||124%|
|AMERICAN EXPRESS RETIREMENT SAVINGS PLAN Strategic Asset Allocation Moderate||13%||108%||3%||16%||9%||49%|
|Four Core Asset ETF Index Funds Emerging Markets Tactical Asset Allocation Moderate||1%||6%||6%||49%||12%||78%|
|Four Core Asset ETF Index Funds Emerging Markets Strategic Asset Allocation Moderate||10%||75%||2%||6%||7%||31%|
Currently, asset classes in US Equity (SPY,VTI), Foreign Equity (EFA,VEU), Emerging Market Equity (EEM,VWO) and Fixed Income (AGG,BND) are doing relatively well. These asset classes are available to AMERICAN EXPRESS' RETIREMENT SAVINGS PLAN participants.
To summarize, AMERICAN EXPRESS' RETIREMENT SAVINGS PLAN plan participants can achieve reasonable investment returns by adopting asset allocation strategies that are tailored to their risk profiles.
Disclosure: No positions