Would you be comfortable having just a single pair of shoes in your wardrobe? There are good reasons people keep lots of different shoe styles in their closet. It would be tough to play tennis in dress shoes. Wearing running shoes to a wedding might get you a few side glances.
The same concept applies to the investment funds in your ABA Retirement Funds Program (“the Program”) account. If you have all of your savings invested in one fund, your account value will go up and down based on the performance of that single fund. It is like expecting one shoe style to be appropriate for all occasions.
Diversify your investments to help manage risk
Investing your retirement savings in a well-diversified mix of funds across different investment categories (called asset classes), can help you manage the potential for volatility in your retirement account. From year to year, certain asset classes tend to perform differently from one another because trends in the global economy vary. Since no one can predict which asset classes will perform best at any given time, having a diversified portfolio invested in a variety of asset classes means you are more likely to have some money invested in whichever asset classes are performing better.
The experience of investors in the Program indicates that getting professional help choosing your investments may improve your experience. We studied the Personal Investment Performance (PIP) of over 31,000 Program participants in 2017 and, on average, those who got some form of professional help with their investments had higher PIP*, after taking into account fees paid, than those who got no help. While nobody can guarantee these results going forward, the data from 2017 is compelling.
This short video explains how diversification works and why it is a good strategy for your Program account.
You can diversify your portfolio by investing in a single Tier I Fund. Even though it seems like investing in a single fund option would not be “diversified”, each of these funds is a pre-mixed, diversified portfolio consisting of many different asset classes. It is a one-stop way to diversify. Another option is to build your own diversified mix by investing in a number of Tier II core Funds across different asset class categories.
Simply choose the investment tier that matches your investment style. Tier I may be best for hands-off investors and Tier II may be a good choice for hands-on investors who want more control over their individual fund selection.
Get personalized retirement investment and savings advice
If you need help making investment decisions for your Program account, you have access to advice through Voya Retirement Advisors (VRA)**, powered by Financial Engines®. There are two ways to get investment advisory services:
This “do-it-yourself” resource is available at no additional cost to you and accessed through the Program website after you login to your account. Online Advice is designed for people who want to actively manage their own savings and investment decisions. This service includes the option of speaking to a VRA Investment Advisor Representative whenever you have questions or need additional guidance.
This “do-it-for-me” fee-based program is designed for people who want to partner with a professional advisor. A VRA Investment Advisor Representative will work with you to create and implement a personalized retirement savings and investing plan, and will then monitor and manage the plan for you. Fees are blended and based on a percentage of your account balance. Your initial consultation is offered at no additional charge.
However you get there, diversification is a good thing and one of the ways to help protect your retirement savings account against inevitable market ups and downs.
*Personal Investment Performance (PIP) is a measurement of the performance of the entire account for the statement period net of fees. PIP is calculated based on the performance of investments during that period, taking into account any activity among investments. This method of calculating performance is used by the financial services industry. Other methods of calculating performance may yield different results. n=31,064 accounts with a balance >$1,000 – 1,639 enrolled in Professional Management, 3,834 using Online Advice, 7,422 investing 95% or more of their Program account in one or two consecutive Retirement Date Funds, 18,169 receiving “No Help”.
**Advisory Services provided by Voya Retirement Advisors, LLC (VRA). For more information, please read the Voya Retirement Advisors Disclosure Statement, Advisory Services Agreement and your plan’s Fact Sheet. These documents may be viewed online by accessing the advisory services link(s) through your plan’s web site at www.abaretirement.com. You may also request these from a VRA Investment Advisor Representative by calling your plan’s information line at (800) 348-2272. Financial Engines Advisors L.L.C. acts as a sub-advisor for Voya Retirement Advisors, LLC. Financial Engines Advisors L.L.C. (FEA) is a federally registered investment advisor and wholly owned subsidiary of Financial Engines, LLC. Neither VRA nor FEA provides tax or legal advice. If you need tax advice, consult your accountant or if you need legal advice consult your lawyer. Neither VRA nor FEA guarantee results and past performance is no guarantee of future results. Financial Engines® is a registered trademark of Financial Engines, LLC. All other marks are the exclusive property of their respective owners.
While using diversification as part of your investment strategy neither assures nor guarantees better performance and cannot protect against loss in declining markets, it is a well-recognized risk management strategy.