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Finding the right asset allocation for you

Make sure you have a blend of investments from various asset classes.

Asset allocation is the practice of diversifying your portfolio with a mix of investment options. Along with the percentage of pay you defer into your employer-sponsored retirement plan, it can be an essential part of getting the most out of your employer's retirement plan.

"Asset allocation is absolutely critical," says Randy Long, managing principal at SageView Advisory Group in Irvine, Calif. "A significant portion of an investor's total portfolio return is derived from the asset allocation."

Through asset allocation, you can diversify your investment elections to help achieve a level of risk with which you are comfortable. However, investment options are subject to investment risk and it is possible for an investment option to lose value.

Your personal mix

Asset classes are categories of investment options. Each asset class has its own risk and performance characteristics. In general, asset classes with lower risk levels offer lower potential for growth. Likewise, asset classes with higher risk levels offer greater growth potential.

Mixing the various categories helps you develop an asset allocation that may be in line with your risk tolerance. But how should you decide what mix is right for you? Consider the following:

Your savings timeframe

In general, the longer you have before retirement, the greater percentage you might hold in higher-risk investment options, such as International Equities. You may want to take advantage of their potential for inflation-beating growth, given the categories' higher risk levels and the thought that you could likely have time for future returns to make up for downturns. As retirement nears, you may shift a larger percentage of retirement funds to lower-risk categories, such as fixed income, to potentially help preserve what you've accumulated.

Your emotional response

A diversified asset allocation may help you feel more comfortable with your portfolio even when the market shifts. That's because you're better able to manage risk: With a mix of different investment options from various asset classes, you may not be impacted as much by changes to a single category. Asset allocation may help you ride out market highs and lows and help you resist the urge to speculate during market swings.

If the fear of market declines keeps you up at night, you may prefer to have a heavier mix of lower-risk investment options. If downturns don't bother you and you are decades from retirement, your allocation may include more higher-risk asset classes.

Stay on track

After you've established your asset allocation, take care to maintain it. Review the asset allocation of your portfolio at least annually or as significant events occur. Be sure you are comfortable with the way the retirement savings are allocated, and that your choices continue to be in line with your goals.

Check out our interactive retirement planning tool.[1] The tool can help give you perspective of your current retirement savings as you determine the actions you may need to take, over time, to save for a more secure retirement.

Take the Investor Profile Quiz (login to retirement plan account required) from the Principal Financial Group®. It may help you identify your risk tolerance level. The quiz is just a guideline to be used for educational purposes, but your responses could help you develop an investment strategy based on your age, how long you expect to live in retirement and your appetite for risk.


My Principal® Edge Milestones not available online for all participants.

Investors should carefully consider mutual fund's investment objectives, risks, charges, and expenses prior to investing. A prospectus, or summary prospectus if available, containing this and other information can be obtained by contacting a financial professional, visiting, or calling 1-800-547-7754. Read the prospectus carefully before investing.

Investment options are subject to investment risk. Shares or unit values will fluctuate and investments, when redeemed, may be worth more or less than their original cost. It is possible for an investment option to lose value.

Insurance products and plan administrative services are provided by Principal Life Insurance Company. Securities are offered through Princor Financial Services Corporation, 1-800-547-7754, member SIPC and/or independent broker dealers. Securities sold by a Princor® Registered Representative are offered through Princor. Princor and Principal Life are members of the Principal Financial Group® (The Principal®), Des Moines, IA 50392.

The tool is limited only to those financial concerns you input and is not intended to be a financial plan or investment advice from any member company of the Principal Financial Group. These are only general guidelines which may be helpful in making personal financial decisions. Responsibility for these decisions is assumed by you, not The Principal.

Randall C Long and SafeView Advisory Group are not an affiliate the Principal Financial Group or any of its member companies.

Equity investment options involve greater risk, including heightened volatility, than fixed-income investment options. Fixed-income investment options are subject to interest rate risk, and their value will decline as interest rates rise.

Fixed-income and asset allocation investment options that invest in mortgage securities are subject to increased risk due to real estate exposure.

Asset allocation does not guarantee a profit or protect against a loss. Investing in real estate, small-cap, international, and high-yield investment options involves additional risks. Additionally there is no guarantee this investment option will provide adequate income at or through retirement.


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