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Once you have decided how much money to contribute to your Nationwide account each payday, your next decision involves where that money goes.
Retirement plan participants typically decide which asset classes and what percentage of contributions should go into each through a process called asset allocation. There are four major asset classes — stocks, bonds, cash and cash equivalents, and alternatives — each with a different risk and return profile. Generally, the greater the potential risk, the greater the potential return.
Your asset allocation strategy should reflect your financial situation and goals. To create your strategy, you should consider your:
- Financial goals — How well your retirement budget meets your goals may depend on the income you can generate from these investments
- Time horizon — The period between now and when you will begin to convert your investments into income, usually your retirement date
- Risk tolerance — Your comfort level with the possibility of investment loss
Many asset allocation strategies incorporate diversification as a key tactic. Diversification is the process of spreading money across several asset classes and, as your account grows, across several assets in each class. By investing in different asset classes, you reduce the risk of overall investment loss. The theory is, if one asset class underperforms, others may perform better, helping to stabilize returns. Diversification within an asset class helps reduce the risk of loss from a single underperforming fund in that class.
A well-developed asset allocation strategy should adapt as your financial needs and risk tolerance change, helping ensure that your portfolio remains aligned with your goals. You can help accomplish this by committing to regularly reviewing and, when necessary, rebalancing the investments in your Nationwide Supplemental Retirement Plan account.
For assistance in understanding asset allocation and how to use it as an investment strategy, contact your Retirement Specialist. To review or revise your asset allocation, log in to your retirement plan account.