Wealth Management, Annuities & Income

Variety is the Spice of Life

Having a mixed portfolio with combined investment types can help any investor during economically uncertain times.

Even savvy investors with years under their belts were tested during the COVID-19 pandemic. Although things seem to be settling down, there’s one way to feel confident that your money is doing the most it can: diversify, even during volatile markets. Diversification means having a variety of investment types, such as, stocks, bonds, and cash investments. Having your retirement savings or contributions in only one type of investment means you’re taking greater risk if something happens to that asset class.


Diversifying Your Workplace Retirement Plan

Diversifying doesn’t mean your accounts are fully protected; any fluctuating market can impact your investments. What it does mean is that it can help protect your money in markets that are having significant swings. Diversifying doesn’t mean you have to have 20 different baskets, but it does mean that putting your money in a few different baskets can help to protect what you have.

Most retirement plans offer options that are already diversified, such as the ones listed below:


Mutual Funds

You can think of the first basket as containing mutual funds, which in itself contains a variety of investments. They’re typically different investments that are grouped together by a common factor. For example, a variety of stock in companies that make up a market index, a type of asset class (like domestic or international stocks or bonds), or investments in a specific sector (such as manufacturing, construction, or technology). For those concerned about what type of company they’re investing in, there are also socially responsible funds that only invest in companies that follow specific environmental or ethical principals. Although mutual funds are diversified inside themselves, having only mutual funds doesn’t qualify as having a diversified portfolio.

There are definite benefits to gain by investing in mutual funds. Not only are they professionally managed, but an investor doesn’t need to research and purchase each individual stock one by one.

Asset Allocation Funds

The second basket is asset allocation funds. They’re diversified, managed, and monitored by professionals. These types of investments are either risk-based or age-based. The risk-based, often referred to as lifestyle funds, are invested based on your comfort level with risk. The age-based, sometimes called life cycle or target date funds, are invested based on a projected retirement date, and over time gradually lower the risk the closer retirement draws near.

Managed Account and Advise Services

When accounts are professionally managed, participants are able to receive advice that is personalized. These types of plans are good options for those who don’t enjoy investing themselves and want someone to make decisions for them. Before investing, the advisor will determine the best plan of action based on factors such as risk tolerance, time frames, and overall financial goals. Once the allocations have been set, the plan will automatically rebalance on a regular basis, based on the initial selections. This means that whatever percentage you have going into a certain asset class will always remain the same.

Dollar-cost Averaging

When you regularly schedule deposits into your retirement fund, you’re getting the benefit of dollar-cost averaging. This most often happens automatically when your employer deducts an amount each pay period to put into your retirement fund. So no matter if it’s a bull market or a bear market, you’re still investing. Depending on the market the day your money hits the account, you could potentially be buying high or buying low. Buying low means you’re getting more shares, while buying high is the opposite. Knowing how this works can help to ease worry during economically significant market swings, because typically, the average price over the long haul means you save money using dollar-cost averaging.

Interested in knowing more? Contact one of our knowledgeable Financial Advisors to discuss your investment options and how to successfully diversify your portfolio during economically uncertain times.

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