Growth funds provide the highest potential risk and reward, followed in order by growth-and-income, equity-income, balanced and bond funds. Your company’s retirement plan may not offer funds in every investment category.
Models Balance Risk and Return Based on Time Until Retirement
It makes sense for younger investors to invest with the goal of achieving higher returns so that their retirement savings grow and stay ahead of the rate of inflation. As retirement approaches, older investors tend to move into investments with less risk in an effort to protect the money they’ve saved.
That’s how our asset allocation models were designed. Model A puts heavy emphasis on growth for younger investors. Models B, C and D each focus more on income and lower volatility than the preceding model.
If you find yourself more than 10 years into retirement and more dependent on your savings, you may want to consider investing mainly in funds that aim to preserve what you’ve saved.
Reassess Your Investment Mix Regularly
Because your needs, goals, portfolio and situation may change over time, be sure to re-evaluate your investment strategy at least once a year. You can always choose a different model or create your own mix.
Models Are Not Investment Advice
Remember that the models are intended only as a general guide. Your financial professional can help you decide if the models make sense for you. Whether you use the models or not, you’ll need to decide which specific funds to invest in.