Diversification

You’ve heard the tried-and-true saying, “Don’t put all your eggs in one basket.” That’s what diversification is — spreading out, or allocating, your retirement account among different types of investments.

You have two ways to diversify:

1. Between asset categories — Invest in different asset categories, such as stocks, bonds, and cash equivalents.

2. Within asset categories — Choose a variety of investments within the same asset class. For example, you might pick a mix of stocks that varies in company size or market capitalization (large cap, mid cap, or small cap). Or you might choose stocks in different market sectors (energy, technology, health care, etc.)

Putting your money in different baskets can help your account better withstand market ups and downs over the long haul. When one fund is underperforming, typically other funds in your portfolio may be holding steady or on the upswing.

Tune Up Your Account: Rebalance

Rebalancing means returning your portfolio mix as close to its original design as possible. You can achieve this by periodically buying and selling investments. Think of it as a tuneup for your retirement account. When you rebalance, you have a diversified mix of investments and maintain a comfortable risk level for you.

You can rebalance your account at any time (ideally, at least once a year). To do this, review your investment returns and then adjust your allocations to get your investments back in line. If you invest in a Target Date Fund (an investment approach in the Conduent Savings Plan), your account will rebalance automatically. When you invest in a Target Date Fund, you pick the fund that is closest to the year in which you plan to retire. And you invest your savings in that fund. Then, the fund will do the work for you to become more conservative over the years as you work toward retirement. The intent of this investing approach is to invest in one Target Date Fund, not Target Date Funds.  

Keep in mind: Rebalancing maintains your original mix of investments over time. Rebalancing does not change your portfolio to become more conservative as you age. Reviewing your investments periodically is important to ensure the mix you selected is still right for your time frame and risk tolerance.

Roll Down Risk Over Time

The strategy that's right for you today most likely won't be in 10 or 20 years. Most financial experts agree that as you get older, you may want to shift from more aggressive investments to more conservative investments. That’s because, in retirement, you don’t have as much time to recover from market ups and downs. If you invested in a Target Date Fund, the fund makes this shift for you automatically. If not, you’ll need to go into your account to make adjustments.

On the other hand, you don’t want to play it too safe. It’s usually not wise to move all of your investments to more conservative options such as bonds or money market funds. That’s because your savings will still need to generate enough income to last throughout your retirement.