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Strike a Balance

You’re counting on your retirement portfolio for the future. You’re building it with contributions and hope that it will grow in value over time. But how do you set it up for positive growth, knowing that there’s also risk involved?

 The best way is to create the right mix of assets—and the key word is “mix.”

In investing, there are several different asset classes—stocks (equities), bonds (fixed income investments) and cash equivalents (such as money market funds). These assets perform differently under different circumstances. An event that makes stocks gain value might cause bonds to lose value, and vice versa. And the market is moving all the time.

If you keep all of your money in stocks, and something causes stocks to plummet, you could potentially lose a big chunk of your savings. But if you spread your money among different kinds of assets, you may be able to offset losses on some of your assets with gains on others.

“One of the great ways to decrease the impact of the volatility of the market is to have multiple types of assets in a portfolio,” says Brian Anderson, a Thrivent Financial representative in Downer’s Grove, Illinois. “It gives the portfolio some buoyancy.”

What Determines the Best Mix?

There are several factors that shape how you and your financial representative put together your portfolio’s assets:

Risk. How comfortable are you with taking chances with your investments? How much volatility can you handle before you get anxious and make rash decisions with your money? Generally, the more tolerant you are of risk, the more of your portfolio you can keep in riskier assets, such as stocks. If you’re more cautious, you might keep a higher percentage in conservative investments, such as bonds.

“There are no guarantees on what the stock and bond markets are going to do, so you want to make sure to spread out the risk through diversification,” says Mark Mueller, a Thrivent Financial representative in Germantown, Maryland. Although diversification won’t eliminate risk, it can reduce it.

Goals. What are your plans for your money? Do you need money for certain short-term purchases over the next few years? Or is most of your cash sitting for 15 to 20 years before you need to access it? “You may want a certain amount of money for shorter-term purchases, like accumulating money for a house or car,” says Mark Simenstad, vice president and chief investment strategist for Thrivent. “The long-term investments should be things like retirement assets.”

You typically want to hold money for shorter-term goals in less risky investments, such as bonds or a money market fund. Money you don’t need for a couple of decades can be more aggressively invested, since there’s more time to make up for market fluctuations.

Age. The younger you are, the more time you likely have to ride out market corrections. This means you may want to take on more risk. Traditionally, younger investors’ portfolios are more heavily weighted in stocks. They shift their investments more toward bonds and other conservative measures as they get closer to retirement.

Situation. While your age is a big consideration in your investments, there are additional factors that might influence your choices. A 20-something who inherits a large sum may have different investment plans than a someone else in the same age range without a large windfall. Similarly, someone approaching retirement who suddenly must support a grown child or raise a grandchild would have different needs than a peer with an empty nest.  “People’s circumstances can change, and sometimes things can happen out of the blue,” Simenstad says. “As your circumstances change, maybe you need to change your risk tolerance outlook.”

Take a Long View

Thrivent member Stephen Sieling considers himself a moderate to aggressive investor. He’s willing to take some risks with equities. “There are going to be swings in the market over time,” he says, but he believes that over the long-term stocks will likely outperform nearly any other type of investment. 

He worked with Anderson on his financial strategy in the early 2000s when he was thinking about his retirement. He then retired in 2005, and he’s very content with his investment mix. “There have been market corrections, and I’m fine with it,” says Sieling, 70, who lives in La Grange Park, Illinois. “I’m in a position to ride them out.”

Anderson makes a point to set up clients with a portfolio built with the goal of providing five years of stable income, even if the market drops. That way a client near retirement doesn’t experience a drastic loss if the market goes down significantly. They would generally have a stable income stream and enough time for the market to rebound. “Part of our job with our members is understanding where they are in that retirement cycle,” Anderson says.

The key to putting together a portfolio that’s balanced and able to weather the market’s ups and downs is to talk to your financial representative. Be prepared to have a frank discussion about all the above considerations, as well as your goals and retirement timing. Says Mueller: “A well-diversified portfolio can help to spread out the risk, and you get slow and steady growth over time.”

This article first appeared in Thrivent Magazine in March 2018.

About the writer: Kate Ashford is a freelance journalist in New York who has written for BBC.com, Forbes.com, Money, Real Simple and Parents.

 

 

* The member’s experience may not be the same as other members and does not indicate future performance or success. Thrivent membership is based on purchasing an insurance product from Thrivent Financial.


Opinions expressed here are those of the author and not necessarily those of Thrivent Distributors, LLC. or its employees. The information provided here does not purport to be a complete statement of all material facts related to any company, industry or security mentioned. Opinions expressed here are those of the author at the time of writing, are subject to change without notice, and may or may not be updated. This information should not be used as the primary basis of investment decisions. Because of individual client requirements, it should not be construed as advice designed to meet the particular investment needs of any investor. Contact your financial professional and tax advisor before implementing any strategies outlined in this material.

Thrivent Financial representatives are registered representatives of Thrivent Investment Management Inc., 625 Fourth Ave. S., Minneapolis, MN 55415, a FINRA and SIPC member and a wholly owned subsidiary of Thrivent Financial, the marketing name for Thrivent Financial for Lutherans, Appleton, WI.

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