The Compass Institute
The Compass Institute is a private think tank dedicated to investment
strategy research for existing company-sponsored Retirement Plans.
Compass Institute provides investment strategy Diagnostic Services to plan sponsors.
Compass Institute was formed in the 1990s to find ways to overcome the flaws
inherent in commonly marketed Asset Allocation strategies. Research
initially centered on finding a definitive objective strategy—one that did
not depend on manager judgment to forecast future events—one that was
unrestricted by artificial asset class rules.
The criterion set for this strategy was that it was to optimize, over the
life of a Participant's Plan, the performance of a given set of mutual funds
in any existing Retirement Plan. Specifically, the strategy would:
- Maximize Plan returns with minimum risk,
- Protect Plan value in down markets,
- Provide the quickest recovery when a down market ends, and
- Produce the highest Plan value by age 65 or sooner?”
It would take 5-years of intensive dedicated research to find the solution.
The solution was a breakthrough asset allocation
strategy, Adaptive Asset Allocation™ (AAA), characterized as unrestricted, objective
and adaptive to market conditions. The first public implementation of the
AAA strategy was named
Horizon™ AAA has been in use nationally since 2004 by participants in
employer-sponsored retirement plans at companies and organizations including Accenture, Merck,
State Universities Retirement System of Illinois, University of Michigan,
SAP and IBM, as well as by IRA Plan holders.
Public access to the discoveries and advances made at Compass Institute
is available through its affiliate, Compass Institute, LLC, which can be
found on the Web at
Compass Institute is a member of the
Plan Sponsor Council of America (PSCA). Established in 1947,
PSCA is a national, nonprofit association of 1,200 companies and their 5
million employees. PSCA represents its members' interests to federal
policymakers and provides services that are tailored to meet the needs of
companies, ranging in size from Fortune 100 firms to small entrepreneurial
businesses and individuals.
Discoveries and Advancements
Unique discoveries pertaining to a fixed set
of funds in a Retirement Plan stemming from the research included:
- The Time of Start Risk. The limiting effect on
achievable final Plan value of the existing Market Cycle position at the
time a Plan Participant starts his or her Plan.
- The Time of Retirement Risk. The uncontrollable risk
imposed on a Participant as a consequence of reaching retirement age
during a Down Market. Plan values may be so low that the Participant
cannot afford to retire without having significant money outside their
- The Treadmill Effect. The repeated gravitation of Plan
value towards Money Market fund returns during each Down Market.
- Needed Average Annual Return/Minimum Contribution Levels.
The returns and contribution level needed for Participants to grow their
Plan value high enough with low risk to provide them with their final
salary at retirement age 65, for every year of their life.
- The Optimum Allocation Cycle. The time period taken between reallocations to optimize returns and minimize risk.
- The Optimum Number of Funds Held. The number of funds
that a Participant should be invested in in at any given time.
- Best Positioned Funds. Funds that have the greatest
likelihood to increase over the next 2–3 months compared with the
other funds in the Plan. Holding the Best Positioned funds is an essential
component of risk management.
Services Available to Plan Sponsors
Compass Institute provides investment strategy
to plan sponsors. Click
to learn more about this service.
For more information about the Compass Institute, or to discuss how your
organization can benefit from our research, please
contact us for more information.