Three ways to help avoid common asset allocation mistakes

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A well executed financial plan starts with an investment strategy that meets your individual needs and  long-term goals.  Asset allocation—the right combination of stocks, bonds and other investments—can play a critical role in helping you stay on track to help achieve those goals. While creating and maintaining the appropriate asset allocation can be a challenge, a disciplined approach is one of the best things you can do as an investor.
Consider these steps to avoid common asset allocation mistakes:
1) Evaluate your risk tolerance
Each asset class—a group of investments that have aligned characteristics and perform similarly in the marketplace—carries its own risks and potential for growth and income. To evaluate your risk and return, first decide how much risk you’re willing to take based on the potential for return.  By not clearly identifying your risk tolerance, you could end up with:
  • Too many high-risk assets that create unwanted portfolio fluctuation
  • Too many low-risk assets that don’t provide the potential for enough growth
Understanding your time horizon is another consideration when it comes to your risk tolerance.  Younger investors can typically accept more risk due to a longer investment time horizon. Similarly, retirees should consider their long-term outlook, as retirement can last 30 years or more. 
2) Balance your asset classes
It’s natural to want to invest in areas that are familiar or appear to be doing well. For instance, a tech enthusiast might invest heavily in Silicon Valley stocks, creating a portfolio that's over-weighted in one specific sector. Yet, this type of imbalance could add risk if something were to drive those technology companies’ performance down.
One way to work towards consistent returns while managing your risk is to build a portfolio with many eggs in a number of different baskets. In essence, consider a variety of asset classes that includes some less-obvious choices like real estate, which can strengthen your balance of risk versus return. 
3) Take a universal view
While it can be a challenge to review multiple portfolios at once, it’s a good idea to look at your investments as a whole. You might have more than one account in more than one location. For example, your portfolio could consist of your current employer’s 403(b), an online brokerage account and accounts from past employers. In some cases, it may be  advantageous to consolidate these investments into fewer accounts and diversify from there.

TIAA takes every factor into account
By taking all aspects of your life into account, a TIAA advisor can create an individualized and diversified plan that fits your needs and long term goals.  Additionally, an advisor can help you monitor and adjust your assets, meeting with you each year to review where you are and where you want to be.
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1Diversification is a technique to help reduce risk. However, there is no guarantee that diversification will protect against a loss of income.
2Before consolidating assets, be sure to carefully consider the benefits of both the existing and new product. There will likely be differences in features, costs, surrender charges, services, company strength and other important aspects. There may also be tax consequences or other penalties associated with the transfer of assets. Indirect transfers may be subject to taxation and penalties. Speak with a TIAA consultant and your tax advisor regarding your situation.
This material is for informational or educational purposes only and does not constitute a recommendation or investment advice in connection with a distribution, transfer or rollover, a purchase or sale of securities or other investment property, or the management of securities or other investments, including the development of an investment strategy or retention of an investment manager or advisor. This material does not take into account any specific objectives or circumstances of any particular investor, or suggest any specific course of action. Investment decisions should be made in consultation with an investor’s personal advisor based on the investor’s own objectives and circumstances.

Advisory services provided by Advice & Planning Services, a division of TIAA-CREF Individual & Institutional Services, LLC, Member FINRA and SIPC, a registered investment advisor.

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