ASSET CLASSES

Once you determine your investing style, think about asset classes and how they’ll make up your overall portfolio.

What is an Asset Class?

An asset class is a group of investments that have similar characteristics and perform similarly in the market. For example, the primary asset classes for TIAA-CREF investments are:

  • Guaranteed – Provide a guaranteed return over time
  • Equities - Another word for stocks
  • Fixed Income – Known also as bonds
  • Money Market – Invests in short-term, interest-paying securities
  • Multi-Asset – Invests in a combination of two or more of the above asset classes, such as through target date or lifecycle mutual funds.
  • Other - Unique investment strategy, structure and/or risks not represented by the above categories

Guaranteed

A guaranteed annuity account is an insurance product that guarantees principal and a contractually specified interest rate. It also offers the opportunity for higher returns through additional amounts, which may be declared on a year-by-year basis by the company issuing the annuity contract. There is no assurance that additional amounts will be declared in future years. Guarantees are subject to the claims-paying ability of the issuer.

Equities

A domestic equity mutual fund or variable annuity account primarily invests in shares of stock issued by U.S.-based companies. The type of stocks it invests in depends on its investment objectives, policies and strategies. Some funds and annuity accounts invest in a broad range of stocks; others concentrate on one part of the market, such as growth stocks, value stocks, dividend-producing stocks, stocks of particular sizes or stocks of individual industries.

Historically, stock prices have experienced higher degrees of fluctuation and periods of declining values than some other types of investments. However, over extended periods of time, stocks have outperformed other “traditional” investment asset classes, such as bonds and money market instruments. Of course, there is no guarantee that this historical trend will continue in the future. As a result, equity funds and annuity accounts are best viewed as a long-term investment option.

A foreign equity fund or annuity account primarily invests in shares of stock issued by companies outside the United States. Foreign equity funds and annuity accounts provide a convenient, low-cost way to invest in international securities markets compared with investing in these markets directly. Investing internationally offers diversification and the possibility of higher returns, if stock market investors favor foreign markets over U.S. ones. Investing in foreign markets may involve additional costs, though, due to the operational requirements of an overseas fund. However, non-U.S. investments may be subject to greater risk.

Global funds and annuity accounts invest in equities of companies throughout the world, including U.S. companies. Regional funds and annuity accounts focus on stocks of companies in a particular geographic area, such as Europe, Asia or South America, while country-specific funds and annuities narrow their range to stocks from a single country. Funds and annuity accounts that invest in emerging markets look for stocks in developing countries.

Fixed Income

Fixed income mutual funds and variable annuity accounts invest primarily in bonds or other types of debt securities. The type of bonds the fund or annuity account invests in depends on its investment objectives, policies and strategies.

Some funds and annuity accounts invest in a broad range of bonds; others concentrate on a particular type of bond or debt security — such as government bonds, municipal bonds, corporate bonds, convertible bonds — or a mixture of types. Because there are many different types of bonds, bond funds and annuity accounts can vary dramatically in their risks and rewards.

The securities that bond funds and annuity accounts hold will vary in terms of risk, return, duration, volatility and other features. For these reasons, investors often use bonds, bond funds and bond annuity accounts to diversify1, provide an income stream, or invest for intermediate-term goals.

From a risk perspective, bond funds and annuity accounts have generally been less volatile than domestic and foreign stocks, but have demonstrated higher risks than money market funds and annuity accounts, largely because they typically pursue strategies aimed at producing higher yields. Past performance is no guarantee of future results.  Unlike money market funds and annuity accounts, the investments of bond funds and annuity accounts are not restricted by the SEC’s rules regarding high-quality or short-term investments.

1 Diversification cannot ensure a profit or eliminate the risk of investment losses.

Money Market

Money market mutual funds and variable annuity accounts invest in a group of short-term securities that pay interest, such as Treasury bills and short-term corporate debt obligations known as "commercial paper."

Money market funds and annuity accounts are considered an alternative to a bank savings account, although they aren’t insured by the FDIC. Since money market funds and annuities are less volatile than most other asset classes, they are most appropriate for short-term investment and savings goals where preserving capital is more important than capital appreciation.

Money market funds are neither insured nor guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although they generally seek to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in these funds.

Multi-Asset

A multi-asset mutual fund or variable annuity account invests in mutual funds. Multi-asset funds and annuity accounts, which include lifecycle funds and annuity accounts, invest in a mixture of funds that in turn invest in stocks and bonds to build a diversified portfolio across asset classes. The target percentages for each type of investment are stated in the prospectus.

Because stocks and bonds tend to do well during different phases of an economic cycle, multi-asset funds and annuity accounts may be less volatile than pure stock or bond funds. While these funds and annuity accounts can achieve much greater diversification than any single fund or annuity account, their returns are affected by the fees of both the fund or annuity account itself and its underlying funds. There may also be redundancy, which can cut down on diversification, since several of the underlying funds may hold the same investments.

You’ll see your Lifecycle Fund choices listed as “multi-asset” in the “Investment Options” section of your retirement plan, because the fund invests in multiple asset classes.

Other

This category includes investment options that do not neatly fit within the other asset class categories. Examples include stable value collective trust funds, commodities funds, etc. These investments have unique characteristics and risks which cannot be summarized in general terms as has been done with the other asset classes. More detailed information on each investment option can be found in the prospectus, offering documents or other product literature.

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