Your investment strategy plays an important role in your overall retirement readiness. That’s why Lincoln offers articles and resources designed to help you manage asset allocation, diversification, and market volatility.
Understanding the basic principles of investing can help you align your portfolio with your goals, navigate financial decisions with confidence, and work toward the retirement you envision.
Research your investments
Make educated decisions about the investment options offered by your plan and explore the various funds available to you. Research your investments.
Learn the basics of investing
When it comes to making decisions about your retirement plan investments, you may want to start by brushing up on the basics. Let’s review the three basic asset classes: stocks, bonds, and cash or stable value.
- Cash or Stable Value
Stocks are shares of ownership in a publicly-traded company. They typically carry greater risks than bonds or cash/stable value options, but also may offer greater long-term growth potential.
A bond is a loan from an investor to a borrower. This fixed income instrument can be thought of as an IOU issued by a corporation, the government, or a government agency. The issuer promises to pay bondholders the principal of the loan plus a stated rate of interest when the bond matures. Bonds tend to carry moderate risk and lower returns than stocks.
Cash and stable value funds are lower-risk investment options that seek to preserve principal, provide consistent returns, and remain liquid. They generally offer lower returns than other asset classes.
Understand asset allocation
Asset allocation refers to the way your investments are divided among the three asset classes. This decision can be based upon several factors, including your risk tolerance and the amount of time you have until you plan to retire—also known as your “time horizon.”
An investor may choose to focus his or her portfolio more heavily on one of the three asset classes depending on these factors. For example, an aggressive portfolio with a higher level of risk exposure includes more stocks, while a more conservative portfolio includes more bonds or stable value investments. It’s also possible to diversify within an asset class. For example, you may choose a large-cap stock fund and a small-cap stock fund.
Diversify your portfolio
A diverse portfolio typically incorporates a variety of asset classes to help balance risk and return. If one part of your portfolio is doing well and another is losing value, the gains may help offset the losses. Differences in returns among asset classes may cause your asset allocation to shift from time to time, so it’s important to review your account annually. Adjusting your asset allocation back to the desired mix is called rebalancing.
For investors seeking an all-in-one way to manage asset allocation and diversification, a target-date or target-risk fund may be a viable option. These funds are designed to serve as a singular investment option, and they take key decisions—such as investment selection, diversification, or risk management—out of your hands.
Target-date and target-risk funds
See if an all-in-one investment management approach may be right for you. Learn more about target-date and target-risk funds.
Weather market volatility
Fluctuations are a normal part of the market cycle.
Think about asset consolidation
Consider where you want your retirement assets.
Understand interest rates
Interest rate changes may impact daily spending and long-term planning.
Is your investment strategy working for you?
Log in to your account today to review your investments and see if your portfolio aligns with your financial goals. If you have additional questions, consider speaking to a financial professional.