Strategies to Help You Ride Out Uncertain Investment Times

If you’re saving on your own in a 457(b) deferred compensation plan or a 403(b) annuity,
it’s quite likely that your year-end statement was less than encouraging. Don’t lose hope!

And certainly don’t lose sight of your long-term goals. Even in these uncertain economic times, sticking to your long-term retirement plan may be the right choice in the long run. Here are a few investment strategies to help keep you on the path toward your retirement goals.

Don’t Put All Your Eggs in One Basket

That’s the philosophy behind asset allocation, the practice of dividing your retirement savings among different types of investments, or asset classes. Stocks, bonds and cash are the three major asset classes. Asset allocation works by spreading your money around to take advantage of the potential benefits that these asset classes offer. It also helps reduce the risk that your investments will decline significantly since each asset class may perform a little differently than the others in any given investment environment. If one asset class falls, you’ll hopefully counteract losses with better investment returns in another asset class. Determining your ideal asset allocation is a very personal choice, one that depends on your time horizon and your ability to tolerate risk.

Someone in their 30’s saving for retirement may feel comfortable investing a larger percentage of their portfolio in stocks. Stocks are inherently riskier investments, but also have a higher potential reward. They have time to wait out slow economic cycles and the inevitable ups and downs of the markets. On the other hand, someone in their 50’s or 60’s may be more likely to take on less risky investments because their time horizon to retirement is much shorter.

Diversify

It’s also important to diversify your investments within each asset class. Think about this analogy. Apples and oranges may both be fruit, but each has a different taste. Likewise, investments in a stock asset class may all be stocks, but each can vary widely by industry, company size and even parts of the world where they are focused. Diversifying reduces risk and helps your portfolio bear fruit.

Time, Not Timing, Is Key

Predicting the stock market is not like predicting the weather. There are no high-tech gadgets or radar systems to forecast the highs and lows. Without knowing the exact moment to buy or sell, you could easily miss the mark, which could prove costly. Instead of trying to time the market, most financial advisors suggest a carefully planned investment strategy as a way to ride out the market’s ups and downs. This helps you benefit from long-term market performance.

Time and compounding are your most valuable allies when it comes to saving for retirement. Compounding is when your original investments gain earnings, and then future earnings build on top of those earnings. The longer you leave your money invested, the more potential it has to grow.

Review and Rebalance

Review your asset allocation strategy regularly. As you get older and closer to retirement, it’s normal to adjust your allocation strategy to less risky investments. In addition, gains or losses in one asset class may have skewed your portfolio to the point where it’s more aggressive than you had originally intended, or vice versa. Periodic rebalancing of your portfolio helps keep it in check with your objectives.

For individual questions about investing your retirement savings, seek the advice of a qualified financial advisor. If you participate in the Kansas Public Employees Deferred Compensation Plan, you can call ING at 785-296-7095 or toll-free 1-800-232-0024 and press option 5 to arrange an appointment with an ING representative.