Make The Right Choice

MAKE THE RIGHT CHOICE
The rapid growth of retirement-planning options such as
401(k)s, IRAs, and variable annuities has provided an
ever-increasing variety of investment choices within each plan
to save for retirement years Yet, a number of reports show that
an alarming number of today’s investors are oblivious to the
importance of asset allocation in their retirement portfolios’
performance This is despite the fact that financial advisors
and the financial press have emphasized the asset allocation
decision as critical to investment selection
Market studies published in the Financial Analysts Journal in
1986 and updated recently show that how dollars are allocated
among stocks, bonds and cash equivalents is the single most
important decision an investor can make In fact, according to
the studies, security selection and market timing are far less
important to a portfolio’s performance compared to the overall
asset allocation
Although these results have been widely publicized by the
financial press and investment firms, a lot of retirement plan
participants aren’t taking the message to heart Company stocks
and guaranteed investment contracts (GICs) still compose a bulk
of the assets in the country’s defined contribution plans
Company stock and GICs roughly constitute almost two-thirds of
all retirement plan assets Equities, the next most popular
investment choice, composed less than a fifth of the portfolios
Bonds and cash equivalents represent the remainder of the
assets At first glance, one might suspect that plans are
limiting the investment choices available to participants
However, this is not necessarily the case Factors such as
employee loyalty and familiarity account for the popularity of
company stock
On the other hand, GICs offer a fixed rate of return with a
minimum of risk, thus making them attractive to investors who
are understandably cautious about their retirement savings
However, placing too much money in GICs could limit an
investor’s ability to achieve higher returns available from
other investments and necessary to achieve retirement goals
Employees also tend to stay put and never transfer their
balances to other investment choices within their plan, even
when new investment options may be added Retirement planning is
a process that needs to be periodically reviewed This means
updating asset allocations and taking advantage of new
investment opportunities
Given the variety of investment choices available, there is
almost no legitimate reason to have a portfolio that is not
properly diversified Buying company stock develops an ownership
interest in your company that can make work financially and
personally rewarding GICs can help you balance your portfolio
with a fixed-income component However, to really minimize risk
and enhance your ability to achieve superior returns, a
diversified portfolio is recommended
Take the time to periodically review your asset allocation
decision, preferably with the help of your financial advisor If
necessary, adjust your portfolio as your long-term plans change;
most plans allow you to transfer your assets to different
investment classes at least once a quarter Remember, asset
allocation is the most significant tool you have of making a
real difference in your portfolio’s performance

Tags | alarming, analysts, annuities, equivalents, financial, loyalty, participants, plan, planning, retirement, security, selection, variable