Tips to Help Stay on Track

One way to remain focused during market fluctuations is to review the principles of asset allocation, or how your 401(k) investments are divided among different asset classes such as domestic and international stocks, bonds, cash, etc. Determining if an asset allocation is still on target relative to your investment needs can be reassuring, helping you maintain your focus.*

The Big Three
The theory behind asset allocation is that if one type of investment performs poorly, another may be holding steady or gaining, aiming to balance returns and manage risk over time. An asset allocation strategy depends on three important factors:

• 1. Investment goals — Ideally, if you are still saving for retirement, you may already have identified a target amount to accumulate by the time you retire. By contrast, if you are near retirement or a current retiree, you might need to strive for an annual rate of return that both outpaces inflation and provides the desired amount of income.


• 2. Time horizon — The more time you have to pursue your goal, the more you may be able to ride out market fluctuations in pursuit of stronger long-term average returns. Younger investors have a long time horizon. Near or current retirees have a shorter time horizon.


• 3. Risk tolerance — This factor is affected by both your goal and time horizon, but may be a bit more personal as well. It is essentially your comfort zone -- how much volatility, or swings in the portfolio value, you can withstand while investing. Younger investors with more aggressive goals typically have a higher tolerance for market ups and downs than those who are nearing or in retirement.

Care and Feeding of an Asset Allocation Strategy
Regardless of how your initial asset allocation was set up, over time the proportions will gradually shift due to market performance. That is why it’s so important to review a portfolio at regular intervals — usually at least once a year — to see how the various investments are performing. If the portfolio is over weighted in one or several asset classes, it may be time to rebalance — that is, sell some holdings and buy others to get back on target.

For help in reviewing and rebalancing an asset allocation strategy, talk to a qualified financial representative and be sure to visit our Fund Selection Tool.

* There is no guarantee that any investment strategy will achieve its objectives.

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