The Importance of Investment Mix

11As individuals progress from young adults to the age of retirement, their investment mix traditionally changes to meet their needs. This is typically a reflection of a person’s goals, tolerance for risk and investment timeline. Generally, as the time nears to tap into investments for retirement income, the mix of assets becomes more conservative.

However, some may see the situation a little differently these days, as the recession taught various generations different lessons. Older generations that lost money — or at least lost ground in their savings contributions — may now be more likely to hold a larger share of equities than in the past in an effort to accumulate enough savings before retirement.

However, many members of the younger generations, who struggled to find jobs while watching their parents lose them, may have come away with a different perspective: save and spend conservatively. Recent research into the financial behaviors of young millionaires found this to be true even though they had amassed a fortune at such a young age. The study found that some millionaires under 40 are even more conservative than baby boomers in that they favor holding more cash, are less likely to invest in stocks and more prone to putting money in alternative investments (e.g., gold, hedge funds).1

We are all influenced by a variety of factors, including how our parents saved and spent money, the economic and stock market upturns and declines we’ve lived through and our own career paths and financial success. That’s why we believe you can’t always choose investments based solely on your age or your goals. We can help you develop a financial strategy that takes into account all your personal experiences. What investments you select and how they work together can be just as important as your timeline and capacity for risk. Please remember that all investing involves risk, including the potential loss of principal.

Speaking of risk, while cash often seems like a safe bet, it’s important to remember the potential impacts of inflation may cause cash to lose value in the long run. A sustained period of low interest rates on fixed income financial products can create the same issue, which is why many pre-retirees and even retirees are holding more stocks in their portfolios today than in previous generations.2 For some, losing money may be an even bigger concern than running out of it.

In 2016, we’ve seen a good bit of market volatility. In this type of environment, we believe that a diversified portfolio tends to work well. During the first half of the year, diversified, global portfolios delivered both higher returns and less volatility than all-equity portfolios.3

Diversified portfolios can deliver more stable returns over time, as well as the ability to match your risk tolerance with an investment mix. Instead of actively managing a portfolio and pondering whether to buy or sell based on market performance, you may want to consult your financial professional about a well-diversified mix. Such diversification may help to mitigate risk and takes advantage of periods of out-performance without the stress, fees and taxes that may be associated with trying to time the market. In the end, attempts at market timing tend to generate smaller returns than what the overall market does over a long period of time.4

Your account mix may be important, too. A new study that compared saving strategies for retirement accounts over the next 30 years found that most individuals, both young and old, would be best served by a mix of assets in both traditional (401(k)/IRA) and Roth accounts.5

Content prepared by Kara Stefan Communications.

1 Jonnelle Marte. The Washington Post. July 5, 2016. “How millionaires under 40 manage their money.” https://www.washingtonpost.com/news/get-there/wp/2016/07/05/how-millionaires-under-40-manage-their-money/. Accessed Aug. 12, 2016.

2 Christine Benz. Morningstar. Jan. 21, 2016. “6 Retirement Asset-Allocation Pitfalls to Avoid.” http://news.morningstar.com/articlenet/article.aspx?id=737073. Accessed Aug. 12, 2016.

3 Jeffrey L. Knight. Columbia Threadneedle. July 18, 2016. “Diversification strikes back in 2016.” https://blog.columbiathreadneedleus.com/diversification-strikes-back-in-2016?cid=GPemail. Accessed Aug. 12, 2016.

4 Fidelity. Aug. 3, 2016. “The pros’ guide to diversification.” https://www.fidelity.com/viewpoints/guide-to-diversification. Accessed Aug. 12, 2016.

5 ThinkAdvisor. July 11, 2016. “Mix Roth, Traditional 401(k)s for Better Outcomes.” http://www.thinkadvisor.com/2016/07/11/mix-roth-traditional-401ks-for-better-outcomes?t=the-retiree%3Fref%3Dchannel-other-topics&slreturn=1471042680&page_all=1. Accessed Aug. 12, 2016.

We are an independent firm helping individuals create retirement strategies using a variety of insurance and investment products to custom suit their needs and objectives. This material is intended to provide general information to help you understand basic financial planning strategies and should not be construed as financial advice. All investments are subject to risk including the complete loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.

The information contained in this material is believed to be reliable, but accuracy and completeness cannot be guaranteed; it is not intended to be used as the sole basis for financial decisions. If you are unable to access any of the news articles and sources through the links provided in this text, please contact us to request a copy of the desired reference.

AE08165110C