Charting a New Course for Retirement

Investing for retirement is a long-term venture that is ever evolving. Just as ship captains adjust their course to account for changes at sea, you may need to adjust your investment course from time to time. Here are some of the conditions that may indicate you need to chart a new course for your retirement plan investments.

Rough Seas

While it’s normal for investments to experience short-term fluctuations, poor performance for an extended period is cause for concern. Look closely at the investment and compare its performance to that of its benchmark index. If an investment consistently underperforms its benchmark, it’s probably time to steer clear of it.

Shift in Cargo

Investments often grow at different rates, especially different types of investments. If one asset type outperforms others, it eventually may comprise a larger percentage of your portfolio than you intended. To regain your intended asset allocation, you may need to switch out of some investments and into others. Or, you can direct new plan contributions to the underrepresented asset type until your portfolio is rebalanced.

Passenger Modifications

A major change in your life — getting married, having a baby, getting divorced, or losing a loved one — may impact your financial goals. Your portfolio may now be too aggressive or conservative for your new stage of life. You might need to make adjustments to your portfolio so you have a more appropriate mix of investments.

When Retirement Is on the Horizon

As you near retirement, consider your portfolio’s exposure to risk. If your account is heavily invested in stocks, it may be time to adjust your investment strategy. You may want to consider moving some of your money out of stocks and into less risky investments, such as bond and cash alternative investments.* This new course may help protect your portfolio from large losses if the stock market suddenly heads south. Unlike when you were younger, you now have less time to ride out and recover from any downturns.

* Prices of fixed income securities may fluctuate due to interest-rate changes. Investors may lose money if bonds are sold before maturity. Cash alternative investments are short-term securities that can be readily converted to cash, such as U.S. Treasury bills. Cash alternative investments may not be federally guaranteed or insured and investors might lose money. Returns on cash alternative investments may not keep pace with inflation.

Successfully navigating your way toward your retirement may require you to periodically make adjustments to your course.

Changing Course

 As Bob approaches his anticipated retirement date, he moves some of his portfolio out of stock investments and into less aggressive investments.

Bob’s Original Asset Allocation  – 55% Stocks, 35% Bonds, 10% Cash Alternatives

Bob’s New Asset Allocation – 30% Stocks, 50% Bonds, 20% Cash Alternatives

This is a hypothetical example used for illustrative purposes only. These sample allocations are illustrations only. In applying any asset allocation model to your individual situation, you should consider your other assets, income, and investments (for example, your home equity, IRA investments, savings accounts, and other retirement accounts) in addition to the balance in this plan.

Source: DST