Whether you are considering a savings plan for retirement or have already established one, the principal of asset allocation is critical to successful retirement investing. Asset allocation is the way in which investments are distributed in a portfolio among different types of assets or asset classes. While it is a simple concept, proper asset allocation is vital to long-term investment success.
For firm owners and plan sponsors, critical considerations include costs and fees as well as understanding asset allocation and applying it in their plan. Your plan investment lineup will typically include representation from different types of assets. These can be divided into three basic asset classes: stocks, bonds, and money market securities.
- Stocks—Fluctuating frequently in value, stocks carry a high level of market risk over the short-term but historically offer the potential for higher returns than other asset classes. Although past performance is no predictor of future results, stocks generally offer the potential to outpace inflation or the rising prices of goods and services, possibly mitigating inflation risk.
- Bonds—In general, bonds have less severe short-term price fluctuations than stocks and therefore offer lower market risk; however, their overall inflation risk tends to be higher than that of stocks since their long-term return potential is lower. Bond returns may be influenced by movements in short-term interest rates. When interest rates rise, bond prices tend to fall.
- Money market instruments—Having the most stable returns among asset classes, money market instruments carry lower market risk; however, they are not insured or guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other government agency. They also don’t have the potential to outpace inflation as significantly as stocks.
Diversifying among several asset classes can lower the overall risk in a portfolio by increasing the chance that, if and when the return of one investment is falling, the return of another may be rising. However, there are no guarantees and no assurance of protection against profit loss.
Sample Asset Allocations
Allocations are presented only as hypothetical examples and are not intended as investment advice.
The above chart illustrates how plan participants can determine an appropriate allocation based on their life stage and appetite for risk. Generally, an individual’s asset allocation will change as one reaches different stages in life. For instance, a 25-year-old can afford to take on higher risk than a person nearing retirement. The typical investment goal is to achieve as much growth as possible to outpace inflation substantially. In aiming to reach this goal, one might allocate 70% of assets into aggressive growth stocks, 20% into bonds, and 10% into money market instruments with so many years to ride out the wide fluctuations that come with stocks. For the pre-retiree, protecting savings and earnings may become more important, gradually shifting some stock allocation into bond and money market holdings. Note that many financial experts recommend that stocks be considered for every portfolio to maintain growth potential.
Getting Help You Need
The full range of investments that can support proper asset allocation are available through the AIA Members Retirement Program. Plans can be established for one-person firms—or for many employees—utilizing a variety of retirement savings and distribution vehicles. AXA Equitable can assist you in achieving your goals based on 47 years’ experience working with association members and 25 years working with AIA architects. AXA Equitable can help you review your options and offer you choices that will alleviate the burden of establishing and managing a retirement savings plan. It’s one of the ways that the AIA Trust makes it easier for you to focus on doing what you do best: architecture.
Please call 1-800-523-1125 to speak with a Retirement Program specialist or visit us at www.TheAIATrust.com/retirement-plans/ to learn more about asset allocation and how you can start saving today.
AXA believes that education is a key step toward addressing your financial goals, and we’ve designed this material to serve simply as an informational and educational resource. Accordingly, this discussion does not offer or constitute investment advice and makes no direct or indirect recommendation of any particular product or of the appropriateness of any particular investment related option. Your needs, goals and circumstances are unique, and they require the individualized attention of your financial professional. But for now, take some time just to learn more.
Investing is subject to market risks including loss of principal.
Securities offered through AXA Advisors, LLC (NY, NY 212-314-4600), member FINRA, SIPC. Annuity and insurance products, including those issued by AXA Equitable Life Insurance Company (NY NY), offered through AXA Network, LLC, which conducts business in CA as AXA Network Insurance Agency of California, LLC, in UT as AXA Network Insurance Agency of Utah, LLC and in PR as AXA Network of Puerto Rico, Inc.
The retirement plan will be funded by an annuity contract issued and distributed by AXA Equitable Life Insurance Company (AXA Equitable), New York, NY. Annuities contain certain limitations and restrictions.
GE-126451 (6/17) (Exp. 6/19)