Why Asset Allocation Is Critical to Your Retirement

For firm owners and plan sponsors, critical considerations include costs and fees as well as understanding asset allocation and applying it in their plan. Your plan investment lineup will typically include representation from different types of assets. These can be divided into three basic asset classes: stocks, bonds, and money market securities.

• Stocks—Fluctuating frequently in value, stocks carry a high level of market risk over the short-term but historically offer the potential for higher returns than other asset classes. Although past performance is no predictor of future results, stocks generally offer the potential to outpace inflation or the rising prices of goods and services, possibly mitigating inflation risk.
• Bonds—In general, bonds have less severe short-term price fluctuations than stocks and therefore offer lower market risk; however, their overall inflation risk tends to be higher than that of stocks since their long-term return potential is lower. Bond returns may be influenced by movements in short-term interest rates. When interest rates rise, bond prices tend to fall.
• Money market instruments—Having the most stable returns among asset classes, money market instruments carry lower market risk; however, they are not insured or guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other government agency. They also don’t have the potential to outpace inflation as significantly as stocks.

Diversifying among several asset classes can lower the overall risk in a portfolio by increasing the chance that, if and when the return of one investment is falling, the return of another may be rising. However, there are no guarantees and no assurance of protection against profit loss.

The chart available for download below illustrates how plan participants can determine an appropriate allocation based on their life stage and appetite for risk. Generally, an individual’s asset allocation will change as one reaches different stages in life. For instance, a 25-year-old can afford to take on higher risk than a person nearing retirement. The typical investment goal is to achieve as much growth as possible to outpace inflation substantially. In aiming to reach this goal, one might allocate 70% of assets into aggressive growth stocks, 20% into bonds, and 10% into money market instruments with so many years to ride out the wide fluctuations that come with stocks. For the pre-retiree, protecting savings and earnings may become more important, gradually shifting some stock allocation into bond and money market holdings. Note that many financial experts recommend that stocks be considered for every portfolio to maintain growth potential.

If maintaining an asset allocation mix based on your risk tolerance and investment objective seems daunting, there are investment options that can assist you.

Allocation funds and target date funds both provide a mix of the asset classes discussed above. In the case of an allocation fund, the mix will be rebalanced by the portfolio manager to maintain the allocation percentage in each investment type over time. In the case of target date funds, the portfolio manager maintains the mix of assets, but also adjusts the portfolio over time to be more conservative as the fund approaches it stated target retirement date.

The AIA Trust is here to help

The AIA Trust offers retirement savings plans and distribution options through Equitable Financial Life Insurance Company (Equitable Financial) to assist you in achieving your retirement goals. Plans can be established for one-person firms (or components)—or for many employees—utilizing a variety of retirement savings and distribution vehicles. Equitable Financial can assist you toward achieving your goals based on over 50* years of experience working with association members and over 25 years with AIA architects. Equitable Financial can help you review your options and offer you choices that can help alleviate the burden of establishing and managing a retirement savings plan. It’s one of the ways that the AIA Trust makes it easier for you to focus on doing what you do best: architecture.

For additional information on these AIA-endorsed member benefits, or to schedule a meeting with a financial professional, please call Equitable Financial at (800) 523-1125 or visit at equitable.com/mrp.

This article has been written for general information purposes only. This material does not constitute an offer or solicitation of any kind and is not intended, and should not be relied upon, as investment, tax, legal, or financial advice or services.

The Members Retirement Program is funded by a group variable annuity contract issued and distributed by Equitable Financial Life Insurance Company (Equitable Financial) NY, NY. Annuities have limitations and restrictions. For costs and complete details, contact a Retirement Program Specialist. Equitable Financial and its affiliates do not provide tax or legal advice. You should consult with your attorney and/or tax advisor before purchasing a contract.

* This reference applies exclusively to Equitable Financial Life Insurance Company.

Equitable is the brand name of the retirement and protection subsidiaries of Equitable Holdings, Inc., including Equitable Financial Life Insurance Company (Equitable Financial) (NY, NY); Equitable Financial Life Insurance Company of America, an AZ stock company with main administrative headquarters in Jersey City, NJ; and Equitable Distributors, LLC. Equitable Advisors is the brand name of Equitable Advisors, LLC (member FINRA, SIPC) (Equitable Financial Advisors in MI & TN). GE-5613790.1(04/23)(exp.04/25)