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Retirement Planning

Spring cleaning for your retirement plan
Hand wearing a rubber glove washing a window with a soapy sponge

It’s spring again. A time of renewal. For many, a time to clean out the cobwebs from the winter months and let the fresh air in. While many people are cleaning up, replanting gardens and enjoying the season, it is also a great time to assess, refresh and renew your practice’s retirement plans investment strategy.

One important part of investing for retirement is the principal of asset allocation, or the way in which investments are weighted in a portfolio among different types of assets or asset classes. Asset allocation is a simple concept, but it can be vital to long-term investment success. In fact, a landmark study published in Financial Analysts Journal shows that about 90% of the variability of average total returns earned by balanced mutual funds and pension plans over time was the result of asset allocation policy.1

For practice owners and plan sponsors, costs, and fees of their plan, knowing what asset allocation is and applying it can be critical. Take some time this spring to review your plan. The information below to may help guide you in your review.

Your plan investment lineup will typically include representation from different types of assets. These can be divided into three basic asset classes: stocks, bonds and money market securities.

  • Stocks — Known for fluctuating frequently in value, stocks carry a high level of market risk over the short-term. However, stocks have historically been shown to offer the potential for higher returns than other asset classes. Although past performance is no predictor of future results, stocks have generally been shown to offer the potential to outpace inflation — the rising prices of goods and services — possibly mitigating inflation risk.
  • Bonds — In general, these securities have less severe short-term price fluctuations than stocks and, therefore, offer lower market risk. On the other hand, their overall inflation risk tends to be higher than that of stocks, as their long-term return potential is also lower. Bond returns may be influenced by movements in short-term interest rates. When interest rates rise, bond prices tend to fall.
  • Money market instruments* — Among the most stable of all asset classes in terms of returns, money market instruments carry lower market risk. At the same time, these securities don't have the potential to outpace inflation by as wide a margin.
    Diversifying among several asset classes can lower the overall risk in a portfolio by increasing the chance that, if and when the return of one investment is falling, the return of another may be rising. However, there are no guarantees and no assurance of protection against profit loss.

Sample Asset Allocations table

The chart illustrates how plan participants can determine an appropriate allocation based on their life stage and appetite for risk. Generally, a person’s asset allocation will change as he or she reaches different stages in life. For instance, a 25-year-old can afford to take on higher risk than, say, a person who is nearing retirement. His investment goal typically is to achieve as much growth as possible — growth that will outpace inflation substantially. In aiming to reach this goal, he might allocate 70% of his assets into aggressive growth stocks, 20% into bonds and 10% into money market instruments, since he has years to ride out the wide fluctuations that come with stocks. For the pre-retiree, however, protecting what he may have saved and earned over the years may be more important. He may want to gradually shift some of his stock allocation into bond and money market holdings. Keep in mind, however, that many financial experts recommend that stocks be considered for every portfolio to maintain growth potential.

Hopefully, these examples got you to start thinking about your own asset allocation strategy. If so, take some time to do a little financial spring cleaning to make sure your investments and retirement plan stay on track.

An AXA Retirement Program Specialist can provide further guidance on the importance of asset allocation and options available under the ADA Members Retirement Program.

Visit the AXA website or call 1-800-523-1125.

Mr. LoPorto is senior director and client relationship manager at AXA Equitable. He has more than 25 years of experience in the retirement and financial services industry. 

Securities offered through AXA Advisors, LLC (NY, NY 212-314-4600), member FINRA, SIPC. Annuity and insurance products, including those issued by AXA Equitable Life Insurance Company (NY NY), offered through AXA Network, LLC, which conducts business in CA as AXA Network Insurance Agency of California, LLC, in UT as AXA Network Insurance Agency of Utah, LLC and in PR as AXA Network of Puerto Rico, Inc.

The retirement plan would be funded by an annuity contract issued and distributed by AXA Equitable Life Insurance Company (AXA Equitable), New York, NY. Annuities contain certain limitations and restrictions.

GE-126451 (6/17) (Exp. 6/19)

Important Note: AXA believes that education is a key step toward addressing your financial goals, and we’ve designed this material to serve simply as an informational and educational resource. Accordingly, this discussion does not offer or constitute investment advice and makes no direct or indirect recommendation of any particular product or of the appropriateness of any particular investment related option. Your needs, goals and circumstances are unique, and they require the individualized attention of your financial professional. But for now, take some time just to learn more.

Investing is subject to market risks including loss of principal.

This article has been written and is provided for general information purposes only. This material does not constitute an offer or solicitation of any kind and is not intended, and should not be relied upon, as investment, tax, legal, or financial advice or services.

1. Ibbotson RG, Kaplan PD. Does asset allocation policy explain 40, 90, or 100 percent of performance? Financial Analysts J. 2000;56(1):26-33.

† Allocations are presented only as hypothetical examples and are not intended as investment advice.

*An investment in a money market fund is not insured or guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other government agency. Although the fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the fund.