Spectrum Resource Center

Advice, Articles, Events, Insights, News, Newsletters, Opinions, Press Releases, Updates, and More from Spectrum.

Specify Alternate Text

Two Things Your Asset Allocation Strategy Must Do

Asset Allocation Concept

Asset allocation is simply a fancy term, which answers the question: How should I invest my retirement account balance?

There are good and bad asset allocation strategies. The best strategies accomplish two things:

1. Diversity Investments, to Reduce Risk

2. Provide Suitable Investment Return Potential

Risk means the possibility of losing principal -- the amount you invest. Every investment has risk. Even keeping money in a bank account has risk. For example, if your bank fails and the U.S. Government does not guarantee your account, you may lose your money.

However, not taking suitable risk can be just as bad. Why? Over time, money loses purchasing power. This effect is known as inflation. We see inflation everywhere. Inflation is why a can of Coca-Cola cost $0.10 in 1960 and $1.00 today.

Generally, investments with greater risk tend to provide greater potential investment returns. If your investment returns consistently exceed the inflation rate, then your purchasing power increases over time. However, if your investment returns do not keep pace with inflation then you might need to find alternate sources of income, or your standard of living may decline over time.

There are many ways to calculate inflation, but a good estimate is the U.S. Consumer Price Index. Historically, the average annual change in the U.S. Consumer Price Index has been slightly more than 3%. This means that if a can of Coca-Cola cost $1.00 today, we could reasonably expect it to cost $1.03 one year from now.

In general, equity investments (stocks or stock mutual funds) provide the greatest return potential, but also carry the greatest risk. Fixed income investments (bonds or bond mutual funds) are generally less risky than stocks, but do not tend to provide as much investment return potential.

Cash equivalents, such as money market funds, are generally the least risky asset class, but also provide the least opportunity for investment returns. As an example, below is one investor's asset allocation strategy.

  Years to Retirement
Asset Class 40+ 40 to 20 20 to 10 10 to 5 5 to 0
Equity Investments (Stocks) 100% 80% 60% 40% 20%
Fixed Income Investments (Bonds) 0% 20% 35% 50% 65%
Cash Equivalents (Money Market) 0% 0% 5% 10% 15%
Total 100% 100% 100% 100% 100%

Notice the asset allocation change as the investor approaches retirement. Generally, investors closer to retirement should be more conservative with their asset allocation strategy because they have less time to recoup potential investment losses. Likewise, investors further from retirement can generally assume more risk for potentially greater investment returns.

Knowing your retirement horizon is important before developing your personal asset allocation strategy. In addition, you should always consider investment objectives, risks, charges, and expenses before investing.

blog comments powered by Disqus


401k loan participant loan investing margin professional plan design practice defined benefit pension fees dol retirement readiness documents compliance spectrum open golf pano cancer event tournament philanthropy fiduciary rule tax cuts press release bi cloud technology azure plan intelligence docusign microsoft myretirement limits irs retirement plan contribution asset allocation investments newsletter cybersecurity plan termination merger acquisition gender retirement gap lifetime income investment returns women men erisa defined contribution financial wellness employees financial stress plan faq participant questions payroll finwell plan education fis impact award technology innovation education entreprenuers business accumulation startup wealth ira charity millennials 40th anniversary celebration soc-1 automation recordkeeping case study portal fiduciary tax deduction enrollment escalation video automatic qdia qualified default investment alternative roth participant outcomes uncashed checks distributions debt credit saving cash balance cbpp safe harbor nondiscrimination adp acp top-heavy plan sponsor 3(16) hardship withdrawal forfeiture forfeit vested vesting owner audit bond bundled unbundled psoy plan sponsor of the year abg mfa consulting employer connect reports student loans db/dc providers services guide erisawrap welfare benefit plan fundraiser document cancer reserach retirement confidence wrap spd wrap document plan document welfare benefits employee benefits healthcare wrap unvested vested account balance spectrumopen spd wrapspd spectrumplatform market volatility participant behavior socially responsible esg plan participation secureact secure legislation secureact2019 secureactof2019 secure act secure act of 2019 qaca participation restate restatement erisa bond fidelity bond bonding goals plan amendment election 2020 coronavirus covid-19 business continuity cares act cares covid19 relief retirement plan relief the cares act workforce demographics older employees covid the secure act engagement

ERISA Workplace Retirement Plan Limits

The federal government annually publishes updated qualified retirement plan limits, which impact the contributions, benefit accruals, and compliance of ERISA covered qualified retirement plans. The below tables summarize the most significant changes in recent history.


Keep up on our evolving products, services, solutions, and technology through our Newsletters.

About Our Firm

Spectrum is a B2B consulting firm, which enables American Workers to plan and save towards a dignified financial future by designing, administering, and operating the ranges of retirement and financial plans for U.S. employers.

Get in touch

  • Address: 6402 19th Street, Tacoma, WA 98466, USA

  • Phone: +1 (253) 565-2100

  • Email: Contact Us Form