Investing Basics

How you organize your finances now will play a large role in your future. Here are some time-tested strategies that can help you make informed choices.

Keep Your Perspective — Even In Turbulent Times

When you're investing for retirement, you are investing for the long term, which includes both market upswings and downturns. As a long-term investor, consider having a portion of your portfolio invested in stocks.

Although past performance doesn’t guarantee future results, stocks have historically produced returns that outpaced inflation and outperformed interest-bearing securities such as bonds.1 You may want to ride out volatility in the market while you pursue potentially stronger returns from stocks. If you have a short investing time horizon, you may want to handle market volatility by drawing on other savings to fund current needs, rather than selling stocks that may have declined. That can give your equity investments time to potentially recover their value.

Understand Investment Risk

A key element of successful investing is balancing risk and reward. The risk most investors are most familiar with is market risk, or the possibility that the market will shift and you’ll lose money. Another common risk is inflation.  As an example, if inflation is 3% and your return is 3%, your "real, or inflation-adjusted return" is 0%. Risk can’t be avoided entirely, but keep in mind that the higher the risk, the higher the possible return (or loss) and the lower the risk, the lower the possible return (or loss).  You'll want to be familiar with different categories of investment risk.


Build a portfolio that includes different types of investments or asset classes, such as stocks, bonds, and money market investments, as well as real estate and guaranteed accounts. A well-diversified portfolio can help provide a measure of stability by mitigating the ups and downs of any one type of investment. However, diversification does not guarantee against loss.

Allocate Wisely

Allocation means deciding what percentage of your portfolio goes into each asset class. A landmark 10-year study of large pension funds found that over 90% of the variation in total portfolio return was determined by long-term asset allocation, while less than 5% of the return was the result of specific investment selections.2

You’ll want to review and re-evaluate your investment decisions over time, rebalancing funds among asset classes as necessary. For example, if the value of your investments in stocks or bonds has grown significantly higher than other types of investments, you might want to rebalance that accumulation to other parts of your portfolio to keep the percentage of stocks, bonds or other asset classes in line with your initial allocation.  Rebalancing does not protect against loss or guarantee that an investor's goal or objectives will be met.  It will help you in your efforts to maintain specific asset breakdowns in asset classes.

Pay Attention to Expenses

Review essential data before you invest. Look at the investment company’s track record, individual fund sales charges or loads (not all companies have them), and expenses. Higher fees do not necessarily translate into higher returns. In fact, all other things being equal, expense charges can make a substantial difference in your investment returns over the years.  You'll want to take that into account.

  1. Source: Stocks, Bonds, Bills and Inflation®, © 2009 Ibbotson Associates, Inc. Based on copyrighted works by Ibbotson and Sinquefield. (All rights reserved. Used with permission.)
  2. Gary P. Brinson, L. Randolph Hood, and Gilbert Beebower. Financial Analysts Journal, July-August 1987.
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