Fund managers agree: Broad diversification best supports retirement savings
As the U.S. economy continues to recover, a small panel of TIAA-CREF professionals reflected on recent events in Japan and North Africa as well as emerging investment trends and opportunities. They concluded that broad diversification of investments will continue to be the best way for people to achieve long-term goals supporting retirement savings.
Moderated by Michael Santoli, the associate editor and a long-time columnist for Barron’s, the panel opened the second day of a special TIAA-CREF conference for institutional plan sponsors on Thurs., April 14.
Addressing the inherent difficulty of pursuing long-term financial goals amid the swirl of current events, Scott Evans, who leads TIAA-CREF’s Asset Management business, advised a balanced yet disciplined approach.
“You need to understand that the short-term environment sets prices and expectations,” Evans said. “At the same time, you need a long-term lens and should be willing to hold long-term, income generating investments.”
The panelists concurred on the importance of creating a diversified portfolio that offers exposure to inflation friendly assets such as real estate, agriculture and equities, as well as annuities to lessen longevity risk and generate lifetime income. Among their key points:
- Agriculture is an attractive investment area because worldwide demand for food and for alternative energy from crops will continue to climb.
- The long-term prospects of the Japanese economy, despite current supply-chain disruption, power rationing and nuclear risk, remain solid.
- Moderating demand for oil should lead to more stable prices. To achieve this, U.S. oil consumption will need to be aligned with a more efficient energy policy.
- Finally, interest rates, which have been pushed down to artificially low levels, should begin to rise as the rate of economic growth accelerates, credit demands increase, and the recovery becomes self-sustaining. The rise in rates will be moderate, and in fact healthy, keeping the economy from overheating.
Diversification is a technique to help reduce risk. There is no absolute guarantee that diversification will protect against a loss of income.
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