PARTICIPANT EDUCATION

Diversify your assets

Summary

Investing in a retirement fund is one thing; building a retirement portfolio is another. One of the biggest questions participants have — and one of their biggest roadblocks — is how to pull together an appropriate mix of diversified investments so they don’t put all their eggs in one basket.

According to many studies, asset allocation has as much or more influence on long-term gains as any individual investment. How you allocate your assets determines both your potential for return and the amount of risk you’re taking. And staying with an asset allocation plan over time can help make for a smoother and more comfortable ride. Helping participants work through these major asset allocation questions is one of the most valuable roles you can play to benefit your participants.

Common questions from participants

While you can’t tell participants what to invest in, you can share well-established ideas about diversification and point them to resources that can help them identify what’s right for them. It’s also a good idea to remind them about the need to rebalance their portfolios to keep their asset allocation strategy on track. Here are some of the most common participant questions:

Make sure your participants have a good grounding in basic diversification principles. For example, a diversified portfolio typically has a mix of stocks and bonds, because those major asset classes react differently to market and economic events. Together, they can blunt the overall volatility in a portfolio and improve the chances that at least some part of the portfolio is benefiting regardless of market environment.

It’s also a good idea to reinforce the benefits of mutual funds. While there are many funds to choose from, remind them that almost all mutual funds can provide some degree of diversification as they typically have exposure to hundreds of stocks or bonds with a relatively small investment.

Tell them they’re right to consider the role that age plays in their asset allocation approach. Owning stocks is important for portfolio growth at every age, but the percentage they have in stocks should start high when the participant is young and decline as they approach retirement. For example, an 80% stocks/20% bonds mix might be selected by participants with a long investment timeline. But by the time participants reach retirement, their portfolio may be more heavily weighted with bonds.

Smart investors check their portfolios on a regular basis — perhaps once per year — to make sure that their asset allocation plan hasn’t gotten out of whack. Market gains can make one segment or type of investment much more prominent over time, which can drastically change the risk and return potential of the entire portfolio. The solution is rebalancing — trimming back winning investments and using the proceeds to bring the portfolio allocations back in line with the investment goals. Regularly rebalancing the overall portfolio back to its initial asset allocation percentages can help prevent unintentional changes to a portfolio's risk profile.

One thing to consider would be investing in a target date fund. These funds are managed by professional investors and are designed to get more conservative as the target date — the approximate year they’re planning to retire — approaches. Target date funds follow a “glide path” that automatically reduces the amount of equity over time and becomes increasingly more conservative and income oriented as the target date approaches.

To share with participants

MATERIALS

We’ve compiled the resources below for you to share with your plan participants so they can learn more about the basics of asset allocation.

Article

Diversifying your assets

Article

The fundamentals of asset allocation and rebalancing

Article

Target date funds: What you need to know before investing

Article

What is a target date fund’s glide path?

Explore more participant education resources

Participant Education

Balancing risk and reward
Participant Education

Help participants navigate volatile markets

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Statements attributed to an individual represent the opinions of that individual as of the date published and do not necessarily reflect the opinions of Capital Group or its affiliates. This information is intended to highlight issues and should not be considered advice, an endorsement or a recommendation.

All Capital Group trademarks mentioned are owned by The Capital Group Companies, Inc., an affiliated company or fund. All other company and product names mentioned are the property of their respective companies.

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Capital Client Group, Inc.

This content, developed by Capital Group, home of American Funds, should not be used as a primary basis for investment decisions and is not intended to serve as impartial investment or fiduciary advice.

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PARTICIPANT EDUCATION

Diversify your assets

Summary

Common questions from participants

To share with participants

MATERIALS

Article

Diversifying your assets

Article

The fundamentals of asset allocation and rebalancing

Article

Target date funds: What you need to know before investing

Article

What is a target date fund’s glide path?

Explore more participant education resources

Participant Education

Balancing risk and reward

Participant Education

Help participants navigate volatile markets

OUR CLIENTS

INVESTMENT CAPABILITIES

STRATEGIES

FOCUSED SOLUTIONS

ATTRIBUTION & COMMENTARY

FUND DATA & TOOLS

OUR APPROACH

RESOURCES

INSIGHTS

CAPITAL IDEAS

ABOUT US

PARTICIPANT EDUCATION

Diversify your assets

Summary

Common questions from participants

There are so many investments to choose from, I’m not sure if I’m adequately diversified. What should I do?

I’m worried that I may have too much invested in stocks, but I’m also worried that if I don’t stay invested, I won’t have enough money to last my entire retirement. What’s the right balance between stocks and other investments at my age?

Once I decide my mix of investments, should I just leave it alone after that?

Rebalancing my portfolio between stocks and bonds seems awfully complicated. Is there an easier way to know if I’m properly diversified?

To share with participants

MATERIALS

Article

Diversifying your assets

Article

The fundamentals of asset allocation and rebalancing

Article

Target date funds: What you need to know before investing

Article

What is a target date fund’s glide path?

Explore more participant education resources

Participant Education

Balancing risk and reward

Participant Education

Help participants navigate volatile markets