Financial essentials
Why a diversified retirement portfolio is important.
A diversified retirement planning strategy involves spreading your investments across different asset classes. Doing so can ensure that you have a more resilient retirement account designed to help you pursue your long-term investing goals while managing short-term market fluctuations.
Diversification that suits you.
Diversifying your retirement plan is a personal decision. To get started, consider these questions:
- How much money will you need to retire?
- How long do you have before retirement?
- What is your investment risk tolerance—that is, your ability to withstand the market’s ups and downs?
Different investments have different levels of potential risk and return. Generally, the greater the risk, the higher the potential reward—and vice versa. A thoughtful mix can provide balance and align your plan with both your goals and your comfort level.
By allocating thoughtfully across stocks, bonds, short-term investments, and guaranteed* income options, you can create a resilient retirement plan strategy that can withstand a turbulent market.
An example of a diversified portfolio.
In this hypothetical scenario, a retirement plan participant has a moderate tolerance for investment risk. The participant decides to allocate their assets for both growth and income.
- 49% to U.S. stocks
Objective:
Target growth from domestic companies.
- 46% to bonds
Objective:
Bring stability and regular income.
- 5% to short-term investments
Objective:
U.S. government-issued Treasury bonds, Treasury bills and Treasury notes provide quick access to cash.
The role of guaranteed income.
If you’re looking to diversify your income in retirement, guaranteed income sources can help provide stability—especially during market downturns—without requiring you to dip into your growth investments.
Examples include:
Annuities
Social Security
Maximize this benefit by delaying it until full retirement age, if possible, for larger payments.
Fixed income investments
Some real estate or dividend-paying stocks can supplement bonds, adding dependable income.
These sources can help you ride out market volatility while preserving your long-term investment strategy.
Fixed annuities provide a steady income and their growth potential is not tied to the market.
Variable annuities also provide income for the future with the possibility for growth potential.
Income sources that are free from market risk and provide predictability when it comes to the amount of money you will receive. Think of them as a solid foundation for your retirement income.
What does a diversified portfolio look like?
At a high level, a well-diversified portfolio typically includes a mix of the following asset types:
- 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 – Vehicles like money market funds, which usually yield returns 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 income in retirement.
- Real Estate – Includes options such as real estate-based annuities or REITs (Real Estate Investment Trusts). These can help reduce overall portfolio risk and enhance diversification, as they are typically less correlated with the stock market.
Many retirement plans include Target Date Funds (TDFs), which 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’—allocating 60% to equities and 40% to bonds. While this has long been a common strategy for diversification, it may not deliver the balance you need in today’s market. If the 60/40 mix fits your situation, great—but don’t feel bound by it. Your goals and financial realities should drive your investment strategy, not a one-size-fits-all rule.
In summary, your portfolio should be diversified and tailored to your lifestyle and financial goals. Take time to review your account regularly and ensure your investment strategy aligns with your long-term retirement objectives.
A well-diversified retirement portfolio strikes a thoughtful balance between growth and stability.
Market volatility can be unpredictable and lead to a lot of fear and uncertainty. Having a diversified portfolio is one way to combat this and stay on track towards a more secure retirement.
Just starting your career
In your early career, consider prioritizing stocks over other investment options for their growth potential. In general, stocks experience “up and down” volatility in the short term, but their collective returns have historically smoothed out over the long term.
Settled in your career
As you reach mid-career, you may want to gradually introduce bonds and income assets to build stability.
Nearing the end of your career
As you near retirement, consider increasing your allocation to bonds and guaranteed income, gradually reducing stock exposure to hedge against market risk.
Make planning decisions with confidence.
When reviewing your retirement plan, you may want to talk through ideas. TIAA retirement plan participants can schedule a free session with a financial professional.
Talk with a professional
Schedule a free call to discuss what makes sense for you.
Do it yourself
Get your personalized plan at no additional cost with Retirement Journey Planner.
*Any guarantees are backed by the claims-paying ability of the issuing company.
**For illustrative purposes only.
***Payments from variable annuity accounts are not guaranteed and will rise or fall based on investment performance.
****Refers to the income received from a guaranteed-interest annuity contract, not income provided by a defined benefit pension plan.
Past performance is no guaranteed of future results.
Diversification is a technique to help reduce risk. There is no guarantee that diversification will protect against a loss of investment or income.
No strategy can eliminate or anticipate all market risks, and losses can occur.
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.