Investment Management

20-Second Read

Getting older does not automatically mean moving everything into conservative investments. Your portfolio should reflect your income needs, time horizon, risk tolerance, liquidity, and other income
sources—not simply your age.

In-Depth Answer

As retirement approaches, the purpose of your portfolio begins to change. During your working years, the primary objective may be long-term growth. In retirement, the portfolio may also need to provide income, liquidity, and protection from major losses.

That often means reducing certain risks, but becoming too conservative can create a different problem: insufficient growth to keep pace with inflation over a retirement that may last several decades.

The appropriate allocation balances growth assets, income-producing investments, cash reserves, and, when appropriate, protected strategies.

20-Second Read

Investing a lump sum gets your money working immediately, while dollar-cost averaging spreads purchases over time and may reduce the emotional risk of investing just before a market decline. The
better choice depends partly on your time horizon and comfort with volatility.

In-Depth Answer

Historically, markets have risen more often than they have fallen, which means investing sooner has often produced better long-term results than waiting. However, a large investment immediately before a major decline can be emotionally difficult.

Dollar-cost averaging involves continuous investment in securities regardless of fluctuations in price levels of such securities. An investor should consider their ability to continue purchasing through fluctuating price levels. Such a plan does not assure a profit and does not protect against loss in declining markets.

A compromise may be appropriate—investing a portion immediately and moving the remainder into the market over a predetermined schedule.

Dollar cost averaging involves continuous investment in securities regardless of fluctuation in price levels of such securities. An investor should consider their ability to continue purchasing through fluctuating price levels. Such a plan does not assure a profit and does not protect against loss in declining markets.

20-Second Read

Cash provides safety and flexibility, but too much cash can reduce long-term growth and lose purchasing power to inflation. The right amount depends on your spending needs, emergency reserve, upcoming purchases, and retirement income strategy.

In-Depth Answer

Cash generally serves three purposes: emergencies, known short-term expenses, and protection against needing to sell investments during unfavorable markets.

For retirees, maintaining enough liquidity to cover a portion of upcoming withdrawals can provide valuable flexibility. However, holding several years of expenses entirely in cash may reduce long-term returns.

The appropriate amount depends on the stability of your income sources, portfolio size, expected spending,
major upcoming expenses, and personal comfort level.

20-Second Read

Asset allocation is the mix of investments you hold, such as stocks, bonds, and cash. That mix influences how much growth you may pursue, how much fluctuation you may experience, and how your portfolio responds to changing markets.

In-Depth Answer

A portfolio’s asset allocation describes how money is divided among broad investment types. Stocks typically offer greater long-term growth potential but can experience significant price declines. Bonds may provide income and help moderate volatility, although they also carry interest-rate and credit risks. Cash is more stable in nominal value but may lose purchasing power to inflation.

The right mix depends on more than age. Consider when you will need the money, whether withdrawals are expected, your financial capacity to absorb a loss, and how comfortable you are with market fluctuations. Someone saving for a goal decades away may have different needs from a person funding next year’s expenses.

Markets change your allocation over time. If stocks outperform bonds, the stock portion can become larger than intended and increase portfolio risk. Periodic reviews and rebalancing can help keep the portfolio aligned with its objectives; selling or buying investments may have tax or transaction consequences.

Asset allocation cannot eliminate losses or ensure profits. It is one of the most important ways to connect an investment portfolio to an actual financial plan.

_{Educational content only. Individual circumstances and applicable rules may differ.}

20-Second Read

Owning several mutual funds or exchange-traded funds does not automatically mean you are diversified. Different funds may hold many of the same securities. To evaluate diversification, look at the underlying investments, sectors, geography, and types of risk.

In-Depth Answer

Diversification means spreading exposure across investments that do not always respond the same way to market events. The number of accounts or funds you own can be misleading. For instance, several funds with different names may each have large positions in the same major companies. If those companies decline together, the funds may behave more similarly than you expected.

Start by examining what you actually own across all accounts, not just within each account. Look for concentrations in individual securities, industries, employers, countries, or asset classes. Also consider whether your retirement income, employment, and investments depend on similar economic conditions.

Diversification may involve different stock markets and company sizes as well as bonds, cash, and other suitable assets. However, adding more funds does not necessarily improve diversification, and every added investment may create costs or complexity. In stressed markets, investments that usually behave differently may decline at the same time.

A useful portfolio review asks whether each holding serves a clear purpose, whether exposures unintentionally overlap, and whether the combined risk fits your goals. Diversification helps manage certain
risks; it does not prevent all losses. 
_{Educational content only. Individual circumstances and applicable rules may differ.}