How to Invest Retirement Savings: the Importance of Asset Allocation

One way to help protect yourself from market ups and downs is to develop an asset allocation strategy. Asset allocation is the process of spreading your investments among different asset classes: stocks, bonds, and short-term investments such as cash.

Your money is too important to invest without a strategy. That's why it's critical to analyze your goals and your current situation before you make your next investment decision. Though the term sounds complicated, "asset allocation" means dividing up your investments in a way that makes sense for you. You should consider an asset allocation strategy that matches your unique financial needs, comfort with investment risk, and time frame for when you're planning to retire. In fact, the right asset allocation can help you maintain your confidence through economic ups and downs and even increase your potential for better returns over time. Keep in mind that neither diversification nor asset allocation ensures a profit or guarantees against loss.

When it comes to choosing how your savings are invested, be careful not to shortchange your interests by leaving long-term assets in highly conservative choices. Be sure to balance your need for growth, income, and safety.

If you are further from retirement, a portfolio with a higher allocation of stocks or stock funds may be appropriate. More aggressive asset mixes with higher equity allocations focus on capital appreciation. As you near retirement, however, you may want to gradually shift toward more conservative investments, such as bond or money market funds. A conservative mix focuses more on the preservation of your assets.

Even in retirement, though, it's important to find a balance between growth and preservation, especially during your early retirement years — keep in mind that your retirement is likely to span thirty years or so. Consider keeping some of your money invested in stocks or stock funds, which will allow your assets to grow both to support the later years of your retirement and to keep pace with inflation.

The sample target asset mixes¹ below show some asset allocation strategies that blend stock, bond, and short-term investments to achieve different levels of risk and return potential.

Mixing Asset Classes Can Help Moderate Risk

The allocation that is appropriate for you depends on several factors:

Your time horizon, or when you will need to start tapping into your savings
Your retirement goals, or whether you are focused more on capital appreciation or income generation
Your tolerance for risk
Your overall financial situation

Diversification Within Asset Classes

Not putting all your eggs in one basket also applies to how you invest your portfolio within the major asset classes. Not only is it key for managing risk, but spreading your investments among many different holdings that represent a wide range of investment styles may improve the odds of your portfolio benefiting from a greater number of economic or market developments. Within your stock allocation, you should consider including U.S. and international markets, small- and large-companies, and growth and value investments. For bonds, diversification may entail investing in the investment-grade and high yield markets, for example. The general rule of diversification is that while some of your investment choices may falter, others may perform well, although neither asset allocation nor diversification ensures a profit or guarantees against loss.

One easy way to diversification is with multi-asset class funds, which in addition to providing diversification across asset classes also provide diversification within asset classes. Fidelity offers a line-up of Asset Manager Funds, which are designed to provide an asset mix suitable for a range of investment goals and investor profiles. Another take on single-fund solutions are the Freedom Funds². In addition to providing broad diversification by holding a portfolio of Fidelity funds, the Freedom Funds automatically rebalance their asset mix as the fund gets closer to its target date. Or with Fidelity's Portfolio Advisory Services^SM, you can turn over discretionary management of your retirement or taxable portfolio to our professionals who will recommend an asset mix and select a diversified group of funds for your portfolio, which they will manage on an ongoing basis. Whatever your preference, we can help you determine an appropriate asset allocation and diversify your investments.

If you're a Fidelity customer, you can see your current asset allocation and investment style at a glance with Portfolio Analysis.

Data Source: Ibbotson Associates, 2009 (1926–2008). Past performance is no guarantee of future results. Returns include the reinvestment of dividends and other earnings. This chart is for illustrative purposes only and does not represent actual or implied performance of any investment option. Stocks are represented by the Standard & Poor’s 500 Index (S&P 500®). The S&P 500® is a registered service mark of The McGraw-Hill Companies, Inc., and is a widely recognized, unmanaged index of 500 U.S. common stocks. Bonds are represented by the U.S. Intermediate Government Bond Index, which is an unmanaged index that includes the reinvestment of interest income. Short-term instruments are represented by U.S. Treasury bills, which are backed by the full faith and credit of the U.S. government. It is not possible to invest directly in an index. Stock prices are more volatile than those of other securities. Government bonds and corporate bonds have more moderate short-term price fluctuation than stocks but provide lower potential long-term returns. U.S. Treasury bills maintain a stable value (if held to maturity), but returns are generally only slightly above the inflation rate. Foreign Stocks are represented by the Morgan Stanley Capital International Europe, Australasia, Far East Index for the period from 1970 to the last calendar year. Foreign Stocks prior to 1970 are represented by the S&P 500®. The purpose of the target asset mixes is to show how target asset mixes may be created with different risk and return characteristics to help meet a participant’s goals. You should choose your own investments based on your particular objectives and situation. Remember that you may change how your account is invested. Be sure to review your decisions periodically to make sure they are still consistent with your goals. You should also consider any investments you may have outside the plan when making your investment choices. These target asset mixes were developed by Strategic Advisers, Inc., a registered investment adviser and Fidelity Investments company, based on the needs of a typical retirement plan participant.
Performance of the Freedom Funds depends on that of their underlying Fidelity funds. These funds are subject to the volatility of the financial markets in the U.S. and abroad and may be subject to the additional risks associated with investing in high yield, small cap, and foreign securities.

Before investing, consider the funds' investment objectives, risks, charges, and expenses. Contact Fidelity for a prospectus containing this information. Read it carefully.

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	One way to help protect yourself from market ups and downs is to develop an asset allocation strategy. Asset allocation is the process of spreading your investments among different asset classes: stocks, bonds, and short-term investments such as cash. Your money is too important to invest without a strategy. That's why it's critical to analyze your goals and your current situation before you make your next investment decision. Though the term sounds complicated, "asset allocation" means dividing up your investments in a way that makes sense for you. You should consider an asset allocation strategy that matches your unique financial needs, comfort with investment risk, and time frame for when you're planning to retire. In fact, the right asset allocation can help you maintain your confidence through economic ups and downs and even increase your potential for better returns over time. Keep in mind that neither diversification nor asset allocation ensures a profit or guarantees against loss. When it comes to choosing how your savings are invested, be careful not to shortchange your interests by leaving long-term assets in highly conservative choices. Be sure to balance your need for growth, income, and safety. If you are further from retirement, a portfolio with a higher allocation of stocks or stock funds may be appropriate. More aggressive asset mixes with higher equity allocations focus on capital appreciation. As you near retirement, however, you may want to gradually shift toward more conservative investments, such as bond or money market funds. A conservative mix focuses more on the preservation of your assets. Even in retirement, though, it's important to find a balance between growth and preservation, especially during your early retirement years — keep in mind that your retirement is likely to span thirty years or so. Consider keeping some of your money invested in stocks or stock funds, which will allow your assets to grow both to support the later years of your retirement and to keep pace with inflation. The sample target asset mixes¹ below show some asset allocation strategies that blend stock, bond, and short-term investments to achieve different levels of risk and return potential. The allocation that is appropriate for you depends on several factors: Your time horizon, or when you will need to start tapping into your savings Your retirement goals, or whether you are focused more on capital appreciation or income generation Your tolerance for risk Your overall financial situation Diversification Within Asset Classes Not putting all your eggs in one basket also applies to how you invest your portfolio within the major asset classes. Not only is it key for managing risk, but spreading your investments among many different holdings that represent a wide range of investment styles may improve the odds of your portfolio benefiting from a greater number of economic or market developments. Within your stock allocation, you should consider including U.S. and international markets, small- and large-companies, and growth and value investments. For bonds, diversification may entail investing in the investment-grade and high yield markets, for example. The general rule of diversification is that while some of your investment choices may falter, others may perform well, although neither asset allocation nor diversification ensures a profit or guarantees against loss. One easy way to diversification is with multi-asset class funds, which in addition to providing diversification across asset classes also provide diversification within asset classes. Fidelity offers a line-up of Asset Manager Funds, which are designed to provide an asset mix suitable for a range of investment goals and investor profiles. Another take on single-fund solutions are the Freedom Funds². In addition to providing broad diversification by holding a portfolio of Fidelity funds, the Freedom Funds automatically rebalance their asset mix as the fund gets closer to its target date. Or with Fidelity's Portfolio Advisory Services^SM, you can turn over discretionary management of your retirement or taxable portfolio to our professionals who will recommend an asset mix and select a diversified group of funds for your portfolio, which they will manage on an ongoing basis. Whatever your preference, we can help you determine an appropriate asset allocation and diversify your investments. If you're a Fidelity customer, you can see your current asset allocation and investment style at a glance with Portfolio Analysis. Top Data Source: Ibbotson Associates, 2009 (1926–2008). Past performance is no guarantee of future results. Returns include the reinvestment of dividends and other earnings. This chart is for illustrative purposes only and does not represent actual or implied performance of any investment option. Stocks are represented by the Standard & Poor’s 500 Index (S&P 500®). The S&P 500® is a registered service mark of The McGraw-Hill Companies, Inc., and is a widely recognized, unmanaged index of 500 U.S. common stocks. Bonds are represented by the U.S. Intermediate Government Bond Index, which is an unmanaged index that includes the reinvestment of interest income. Short-term instruments are represented by U.S. Treasury bills, which are backed by the full faith and credit of the U.S. government. It is not possible to invest directly in an index. Stock prices are more volatile than those of other securities. Government bonds and corporate bonds have more moderate short-term price fluctuation than stocks but provide lower potential long-term returns. U.S. Treasury bills maintain a stable value (if held to maturity), but returns are generally only slightly above the inflation rate. Foreign Stocks are represented by the Morgan Stanley Capital International Europe, Australasia, Far East Index for the period from 1970 to the last calendar year. Foreign Stocks prior to 1970 are represented by the S&P 500®. The purpose of the target asset mixes is to show how target asset mixes may be created with different risk and return characteristics to help meet a participant’s goals. You should choose your own investments based on your particular objectives and situation. Remember that you may change how your account is invested. Be sure to review your decisions periodically to make sure they are still consistent with your goals. You should also consider any investments you may have outside the plan when making your investment choices. These target asset mixes were developed by Strategic Advisers, Inc., a registered investment adviser and Fidelity Investments company, based on the needs of a typical retirement plan participant. Performance of the Freedom Funds depends on that of their underlying Fidelity funds. These funds are subject to the volatility of the financial markets in the U.S. and abroad and may be subject to the additional risks associated with investing in high yield, small cap, and foreign securities. Before investing, consider the funds' investment objectives, risks, charges, and expenses. Contact Fidelity for a prospectus containing this information. Read it carefully.	Guidelines for choosing an appropriate mix of stocks, bonds, and cash for your time horizon, financial situation, and risk tolerance Importance of limiting exposure within asset classes with diversification Get Fidelity's help determining an appropriate investment strategy: with the help of a retirement specialist or online with Portfolio Review. See how managing your retirement can be made easier with services like automatic investments or withdrawals and consolidated accounts and account monitoring. Learn about considerations for rebalancing to achieve your desired asset allocation. Learn about Fidelity's annuity offeringsand how they can provide protection against market volatility.
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