Most people do not have a thorough understanding of financial markets and investing. Yet, many plans do not offer model portfolios. However, with the evolution of technology, model portfolios have become more prominent than ever.
Model portfolios serve to provide a well-diversified portfolio by matching the participants risk with an appropriate asset allocation. These models should be monitored regularly by the investment committee and investment advisor. Following are a few best practices for setting up model portfolios:
- Five models ranging from conservative to aggressive
- Automatic rebalancing feature
- At least one fund for each of the nine Morningstar style boxes
- Regular monitoring of the models