Why diversify?

You may be at a point in your life where you’re able to put some money aside, but you’re not sure what to do with it. You know investing is important, but you may not know where to start. Stocks, bonds, mutual funds . . . how do you choose? Actually, those assets (and many others) should all be included in a healthy, diversified portfolio. If you include several asset classes in your long-term portfolio, the upswing of one asset class may help offset the downward movement of another as conditions change. Here are some tips to help you build that diversified portfolio.

Maximize your employer’s 403(b) or 401(k)

If your employer offers a 403(b) or 401(k), you need to take advantage of it. Most employer plans offer an employer match which means for every pre-tax dollar you contribute, your employer will match dollar-for-dollar (or a portion of that dollar) up to 6% in most cases. You’ll be leaving free money on the table if you’re not maximizing these plans.

Know your investment options

Some typical investments include stocks and bonds, mutual funds and annuities. Let’s a take a closer look at these.
Also c alled stocks, equities represent shares of ownership in publicly held co       mpanies.
  • Historically have outperformed other investments (keep in mind that past performance does not guarantee future results)
  • Most volatile in the short term
  • Returns and principal will fluctuate so that accumulation, when redeemed, may be worth more or less than original cost
Fixed income
Fixed income, or bond investments, generally pay a set rate of interest over a given period, then return the investor’s principal.
  • Set rate of interest
  • More stability than stocks
  • Value fluctuates due to current interest and inflation rates
Money market
Money market investments are relatively safe, liquid short-term investments; examples include: government issued securities, CDs, banker’s acceptances, euros and commercial paper.
  • Less volatile than stocks and bonds1
  • Lower potential for growth
  • Short-term investment
Guaranteed assets with a fixed rate and backed by the claims-paying ability of the issuing insurer.
  • Preserves your principal
  • Provides at least a specified minimum return
Real estate
Your home or investment property; shares of  funds that invest in commercial real estate.
  • Helps protect future purchasing power as property values and rental income  tend to run parallel to inflation
  • Values tend to rise and fall more slowly than stock and bond prices. It is important to keep in mind that the real estate sector is subject to various risks, including fluctuation in underlying property values, expenses and income, and potential environmental liabilities.   

Understand the risks

As you can see from the table above, each asset class comes with its own investment risks and strategies for potential growth or income. The idea is to not put all your eggs in one basket (or one asset class). For example, if you are heavily invested in stocks, you have a greater potential for return, but you’re also exposed to  risks such as investment losses compared to a fixed-income asset like a bond.

Don’t go it alone

It’s so important to build a portfolio with diversified assets, but building that portfolio can seem daunting. One popular strategy to eliminate the guesswork is to invest in an index fund. An index fund is a mutual fund that tracks key stock indices like the S&P 500.
Another option is lifecycle funds. A lifecycle fund is an easy way to manage your investments through your working years and into retirement. You choose the fund that most closely matches your retirement year, e.g. a Lifecycle 2040 Fund is for an investor planning to retire around 2040. The fund is professionally managed and automatically adjusts over time. This relieves you of making complicated investment, portfolio allocation and rebalancing decisions every year.
A well-executed financial plan with proper asset allocation, tailored to your personal circumstances and supported by a trusted advisor, is a sound basis for financial success but can be difficult to execute on your own. Your TIAA financial advisors and portfolio managers can help you get there. They are trained to help you build a portfolio that will keep you on track with respect to your financial goals and help you adjust over time as your circumstances change.
Please note, the target date for lifecycle funds is the approximate date when investors plan to start withdrawing their money. The principal value of the fund(s) is not guaranteed at any time, including at the target date.
1 Diversification is a technique to help reduce risk. There is no guarantee that diversification will protect against a loss of income.
TIAA products may be subject to market and other risk factors. See the applicable product literature, or visit www.tiaa.org for details.