An Investing Fable

https://vimeo.com/329096538

Once upon a time, employees felt secure about their retirement. They had the security of a “defined benefit plan,” administered by investment professionals, hired by their employer.

Employees received a fixed monthly income in retirement based on their salary and length of employment. Typically, these plans allocated 60% of their assets to stocks and 40% to bonds, because that was suitable for most plan beneficiaries.

Now, there are few defined benefit plans. The responsibility to plan for retirement has been shifted to employees, through 401(k) and similar plans.

This has not worked well. Most employees lack the sophistication of investment professionals.

You can replicate a defined benefit plan, but the securities industry won’t tell you how easy it is.

Consider Vanguard’s LifeStrategy Moderate Growth Fund (VSMGX). (I have no affiliation with Vanguard). It’s allocated 60% to stocks and 40% to bonds. It’s professionally managed. It’s very low cost. It’s broadly diversified. Since inception (09/30/1994) the average annual return has been 7.66%.

This is an investing fable that could have a happy ending.