Financial essentials
Why a diversified retirement portfolio is important.
A well-structured retirement plan portfolio goes beyond simply pursuing the highest returns, it’s about working toward long-term financial goals by thoughtfully managing risk.
Diversification that suits you.
How to diversify your retirement plan investments is a personal decision, but you can think about the interplay between three inputs.
- How much money will you need to retire?
- How long do you have before retirement?
- What is your investment risk tolerance—that is, your ability to withstand the market’s ups and downs?
Different investments have different levels of potential risk and return. Typically, as risk rises so does your potential payout. And the reverse is true as well: Safer investments tend to come with lower return expectations.
An example of a diversified portfolio.
In this hypothetical scenario, a retirement plan participant has a moderate tolerance for investment risk. The participant decides to allocate their assets for both growth and security.
49% to U.S. stocks Objective:
Target growth from domestic companies.
46% to bonds Objective:
Bring stability and regular income.
5% to short-term investments Objective:
U.S. government-issued Treasury bonds, Treasury bills and Treasury notes provide quick access to cash.
*For illustrative purposes only
The role of guaranteed income.
These sources create a financial safety net, so you can weather downturns without dipping into your growth investments. Securing some guaranteed income in retirement can ease financial stress.
Options include:
Annuities
These provide a steady, reliable income stream—essentially acting as a personal pension.
Social Security
Maximize this benefit by delaying it until full retirement age, if possible, for larger payments.
Fixed income investments
Some real estate or dividend-paying stocks can supplement bonds, adding dependable income.
What does a diversified portfolio look like?
At a very high level, a well-diversified portfolio could be composed of a mix of:
- Equities – includes individual company stock, mutual funds, and Exchange-Traded Funds or (ETFs). Equities provide the opportunity for higher growth but are more volatile than other types of assets.
- Bonds – includes municipal, corporate and governmental bonds, which provide lower but more stable returns.
- Cash – such as a Money Market Fund, which typically provide a return similar to the prime lending rate.
- Guaranteed Assets – which often come in the form of Fixed Annuities and provide guaranteed growth during your saving years and the option for guaranteed income in retirement.
- Real Estate – which include options like real estate-based annuities or REITs (Real Estate Investment Trusts). Real Estate is typically less affected by the stock market, which helps lower portfolio risk and can enhance its diversification value.
Many retirement plans include Target Date Funds (TDFs), which themselves are diversified across many asset classes, including equities, bonds, real estate and cash. These funds adjust automatically over time as you get closer to retirement. However, TDFs don’t include guaranteed assets and the option for guaranteed income in retirement.In addition, TDFs aren’t personalized, using just your age or retirement date to determine your investment mix.
In summary, your portfolio should be diversified and tailored to your lifestyle and needs. TIAA can help provide guidance, check-in and review your account and make sure your retirement investment strategy is diversified and aligned with your long-term financial goals. Get help the way you want it.
A well-diversified retirement portfolio strikes a thoughtful balance between growth and security.
By allocating thoughtfully across stocks, bonds, short-term investments and guaranteed income options, you can create a resilient retirement plan strategy designed to withstand market volatility and provide lasting peace of mind.
Building your ideal strategy.
The perfect portfolio allocation will depend on factors like your age, retirement goals and risk tolerance. Here’s a general guideline:
Early career
In your early career, prioritize stocks over other investment options for their growth potential. In general, stocks experience “up and down” volatility in the short term, but their collective returns smooth out over the long term.
Mid-career
As you reach mid-career, gradually introduce bonds and income assets to build stability.
Near retirement
As you near retirement, increase your allocation to bonds and guaranteed income, gradually reducing stock exposure to safeguard against market risk.
Make planning decisions with confidence.
When reviewing your retirement plan, you may want to talk through ideas. TIAA retirement plan participants can schedule a free session with a financial professional.
Talk with a professional
Schedule a free call to discuss what makes sense for you.
Do it yourself
Get your personalized plan at no additional cost with Retirement Journey Planner.
This material is for informational or educational purposes only and is not fiduciary investment advice, or a securities investment strategy, or insurance product recommendation. This material does not consider an individual’s own objectives or circumstances which should be the basis of any investment decision.
Diversification is a technique to help reduce risk. There is no guarantee that diversification will protect against a loss of investment or income.