Deciding how much of your retirement savings to invest in stocks, bonds or cash can make a big difference in your retirement account balance over time. In fact, studies show that asset allocation is responsible for over 90% of a portfolio’s performance.*
How Asset Allocation Works
Investments in the different asset classes tend to react to changing markets in different ways. For example, when stocks are up, bonds might be down. Because gains in one type of investment may offset a decline in another, investing in a combination of asset classes can help reduce your overall risk and increase your potential returns.
Stocks fluctuate in value and are subject to more risk than bonds or money market investments. Shares, when redeemed, may be worth more or less than their original cost.
Bonds, if held to maturity, provide a fixed rate of return and a fixed principal value. Bonds will fluctuate and shares, when redeemed, may be worth more or less than their original cost.
Finding the Right Fit
Your personal asset allocation strategy depends on your retirement savings goals, your tolerance for investment risk, and how long you have before you’ll need to use your savings. Developing an appropriate asset allocation strategy is a critical component of a sound investment plan for retirement. Once you determine your strategy, it’s best to stick with it over the long term, riding out the ups and downs of the stock market.