Compass Investors offers adaptive asset allocation for pension plans
Compass Investors, the company behind the Horizon investment service, is working to change the traditional "steady as she goes" mindset of retirement investing.
Many financial planners still advise a goal of 40-60 per cent income replacement during retirement, but that number courts the documented danger of outliving one's retirement savings, or what Compass Investors call "retirement income security risk."
An estimated 83 per cent of American households now face this risk.
Compass Investors resets the goal at 100 per cent income replacement, but applying today's most popular asset allocation strategies, even to properly diversified retirement plans, will never generate the returns necessary to create this kind of nest egg. Compass Investors provide retirement plan sponsors with a technology-driven investment strategy that promises a solution to this shortfall, which is faced by the majority of their plan participants.
As described in PSCA's Insights, Horizon is designed around the precepts of Adaptive Asset Allocation, a strategy developed at the Compass Institute in the late 1990s, which entails more frequent monitoring and adapting of investment portfolios to ever-changing market conditions. This strategy has historically provided returns of 11-14 per cent, a necessary investment return needed to achieve 100 per cent income replacement after retirement. For plan sponsors, the ability to offer a retirement plan management alternative that supplements the ever-popular set-it-and-forget-it Target Date and Life Cycle funds (averaging six to eight per cent returns) is valuable.
Adaptive Asset Allocation offers both a new strategy and a new philosophy for retirement investing. In contrast to the hands-off mindset of traditional approaches, the approach calls for constant vigilance and an interventionist attitude to retirement savings. Adaptive Asset Allocation also requires investors to dispense with the notion that retirement is "far away".
- Special Reports