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Have you checked your investment direction lately?

Major life changes, or swings in the market, may mean your investment strategy deserves another look.

The way contributions are directed can potentially make a big difference in the amount of savings available at retirement. But it's important not to simply "set it and forget it". Instead, review how your contributions are allocated within the retirement plan at least annually. Major life events, such as those listed below, also should prompt you to take another look.

Major life changes

"Any life-changing event — from losing a job to receiving a large inheritance — is reason to review your retirement plan's asset allocations with a financial professional," says William Boyer Proffitt, vice president of investments at The Proffitt Lombardy Group in New York. A big promotion might allow you to boost your savings and consider an earlier retirement; getting married could mean you and your spouse need to make sure your joint holdings are well-diversified.

In the past year have you:

  • changed your marital status?
  • added or lost a member of your family?
  • changed careers?
  • left your job?
  • received an inheritance or other financial windfall?
  • experienced a significant health event?
  • moved to a new home or changed your living arrangements?

If you answered yes to any of these questions, a review of your asset allocations is in order.

Changes in your tax rate

Congress may vote to increase income taxes, or you could move into a higher tax bracket. Either way, a larger tax burden could have an impact on your long-term savings. A financial professional can help you so your portfolio is as tax-efficient as possible.

Market performance

Some asset classes within your portfolio may perform better than others, which impacts your asset allocation. You may need to rebalance your portfolio to make it suit your goals. "If one asset class has done well and another hasn't, your portfolio will grow out of alignment with your risk tolerance and your investing time horizon," says Proffitt.

The chart below shows how rebalancing works. For example, the original investment direction states 30 percent in international equity investment options, but after a year, there is 35 percent in international equity investment options. This retirement account is rebalanced to its original investment direction by transferring retirement funds out of investment options that have exceeded the original desired allocation percentage and redirecting funds into the investment options that have dipped under the percentage.

investment rebalancing illustrations

No investment strategy, such as asset allocation or diversification, can guarantee a profit or protect against loss in periods of declining values.

Take Action

A financial professional can help you so you can build a portfolio that may be more suited to your life, and maintain it as your life evolves.

The Investor Profile Quiz (login to retirement plan account required) available through the Principal Financial Group®, 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.

Are you curious about how much you should be saving? First, it's important to consider your goals and what your expected expenses may be in retirement. Here's something to keep in mind: In a recent survey, the median response among financial professionals indicated that individuals need to save approximately 15 percent of their pay, including employer contributions (if applicable), to have enough income during retirement, assuming they begin saving for retirement early in their career.*



* Research with Financial Advisors, June 2011, conducted by Harris Interactive on behalf of the Principal Financial Group®. When looking at all responses in the survey, the median is the middle of the responses given.

William Boyer Proffitt and The Proffitt Lombardy Group are not affiliated with the Principal Financial Group or any of its member companies.

Have a question? Call us at 1.800.986.3343

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