Investment strategies

All investments carry some risk. But generally, the higher the risk, the higher your potential return. Conversely, the lower your risk, the lower your potential return. To help you manage your investment risk, make use of some basic strategies that have been proven to help reduce risk. For a more in depth analysis of your personal situation you should consult a personal investment professional.

Investment Strategy #1: Put time on your side
This is the power of compounding you learned about earlier. If you start early, compounding dramatically reduces the amount you need to save between now and the time you retire. Giving your money plenty of time to work means you might find it easier to reach your financial goal.

Assumes 10% annual returns. Rates of return will vary over time. This chart is hypothetical and used for illustrative purposes only and is not indicative of any particular investment.

The earlier you start saving, the easier it will be to reach your goal.

Investment Strategy #2: Take some calculated risks
Your willingness to accept changes in the value of your investments is called your risk tolerance. The amount of risk you can tolerate depends on how long you're going to be investing.

For people with short time horizons — those who need their money in a few months or years — volatility can be a serious risk. The market may be down in value when they want to take their money out.

With a longer time horizon, however, the risk of losing principal due to volatility drops.

Therefore, if you have a long time to ride out market ups and downs, you may be able to accept more volatility in order to reach your retirement goal.

Investment Strategy #3: Allocate your assets — spread your money among different investment classes.

Asset allocation means spreading your money among different investments (e.g. stocks, bonds, cash). When you diversify investments, you divide them among several types of investment classes with different holdings, management styles and risk. Different types of investments often react differently to similar market conditions. If one investment falls in value, others may be rising, so not all of your money is at risk.

Applying the principles of asset allocation may help limit your overall risk and produce more consistent investment returns over time.

Investment Strategy #4: Stay in touch with your portfolio

Finally, you can’t just create an investment portfolio for your retirement plan and forget about it. Your situation may change. Investment markets may change. Your retirement goals may change. For those reasons, you should review your asset allocation at least annually to ensure your portfolio continues to meet your financial goals for retirement and make any necessary changes to your retirement plan account.

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