Discover the importance of diversification

Diversification in agriculture

Throughout the history of agriculture, farmers have learned a few important lessons:

  1. Growing the same crop year in and year out often depleted the soil and reduced their yields; and

  2. Periodically rotating different types of crops would result in higher yields and less soil depletion.

Thus, the concepts of crop rotation and diversification were set in place as principles of good, responsible farming. Careful adherence to these principles would result in a greater harvest. Today you can take advantage of these agrarian fundamentals and apply them to your long-term investment strategy by appreciating the importance of diversification.

When it comes to investing, diversification means spreading your money across the spectrum of asset classes to provide more potential opportunity for growth, while protecting against the risks that come with putting all your money in one place.

 

Let’s make sure your investing strategy is a diversified one

Connect with TIAA to check-in on your account and make sure your retirement investment strategy is diversified and aligned with your long-term financial goals. We can make sure your approach is the right one. Get help the way you want it by meeting in person, virtually or over the phone. Or you can take a DIY approach and use our online tools.

Schedule a meeting Do it yourself

What does a diversified portfolio look like?

At a very high-level, a well-diversified portfolio could be composed of a mix of:

  • Equities – includes individual company stock, mutual funds, and Exchange-Traded Funds or (ETFs). Equities provide the opportunity for higher growth, but are more volatile than other types of assets.
  • Bonds – includes municipal, corporate and governmental bonds, which provide lower but more stable returns.
  • Cash – such as a Money Market Fund, which typically provide a return similar to the prime lending rate.
  • Guaranteed Assets – which often come in the form of Fixed Annuities and provide guaranteed growth during your saving years and the option for guaranteed income1 in retirement.
  • Real Estate – which include options like real estate-based annuities or REITs (Real Estate Investment Trusts). Real Estate is typically less affected by the stock market, which helps lower portfolio risk and can enhance its diversification value.2

Many retirement plans include Target Date Funds (TDFs), which themselves are diversified across many asset classes, including equities, bonds, real estate, and cash. These funds adjust automatically over time as you get closer to retirement. However, TDFs don’t include guaranteed assets and the option for guaranteed income in retirement. In addition, TDFs aren’t personalized, using just your age or retirement date to determine your investment mix.

You may have heard of the “60/40 Rule” (60% equities and 40% bonds). This continues to be an industry standard for building and maintaining a diversified portfolio. However, this approach doesn’t always provide the diversification you might expect, as stocks and bonds can decline at the same time. For example, in 2022, this approach yielded a loss of 15%. Including each of the five asset classes is a much better way to diversify your portfolio.

In summary, your portfolio should be diversified and tailored to your lifestyle and needs. TIAA can help provide guidance, check-in and review your account and make sure your retirement investment strategy is diversified and aligned with your long-term financial goals. Get help the way you want it.

Fun facts about TIAA

Fall is harvest season! Did you know that TIAA’s General Account portfolio includes holdings in agriculture, including:

  1. Premium wine vineyards – Across all of its investments, TIAA grows grapes, a lot of them (100,000 tons in 2022). These grapes are used by leading wineries like Cakebread Cellars, Caymus and Duckhorn.
  2. Other farmland – TIAA owns agricultural property throughout the world, with 43 different types of crops in 7 countries. While this property varies over time, TIAA has owned as much as 2 million acres at any given point in the past 10 years, growing crops such as almonds, pistachios and timber. 
How TIAA's General Account Invests
Woman sitting in a vegetable garden

When it comes to income in retirement, diversification is also important

At TIAA, we believe that guaranteed income options can be an important part of a diversified retirement income strategy. In retirement, you’ll want a mix of income sources, like social security, your 401k/403b, and a Fixed Annuity.

Our Approach

Other resources you might find helpful

Advice

In an hour or less, we can review your account and goals for retirement and discuss potential changes that you can make to help meet these goals.

Schedule Now

Financial education

See all of our financial education resources available at your finger tips

Learn more

Financial wellness & mental health

Understanding the mental-financial -health connection and how to take control of the viscous cycle.

Read the article

1Any guarantees under annuities issued by TIAA are subject to TIAA's claims-paying ability.

2Returns are largely unaffected by movements in stock or bond markets since returns are generated by rental income and changes in property values. For the 10-year period ended December 31, 2022, REA correlation to the S&P 500 Index and Bloomberg U.S. Aggregate Bond Index was -0.20 and -0.36, respectively. Over this same period, correlation between the FTSE Nareit All Equity REIT Index and the S&P 500 Index was 0.77.      

This material is for informational or educational purposes only and is not fiduciary investment advice, or a securities, investment strategy, or insurance product recommendation. This material does not consider an individual’s own objectives or circumstances which should be the basis of any investment decision.  

Investment products may be subject to market and other risk factors. See the applicable product literature or visit tiaa.org for details.

Any guarantees under annuities issued by TIAA are subject to TIAA's claims-paying ability.  

There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.

Q-3842217P-Y0924W