Steps to invest

One of the first concepts to understand in investing is asset allocation. Essentially, this is how you divide investments among the three different asset classes. Try to find the right balance between higher and lower risk investments to help manage risk in your portfolio. The three main asset classes include:

Stocks: purchased shares of ownership in a publicly traded company.

Bonds: I.O.U.s issued by governments, municipalities or corporations with the promise of a return of principal and interest.

Cash: short-term debt securities such as CDs and government securities such as Treasury bills.

Managing risk is a key component to investing for your future. There are 4 key types of risk to consider:

Investment risk: The impact that market volatility could have on your investments

Inflation risk: The rate of price increases and the effect on how far your savings will last in retirement

Longevity risk: The chance that you may outlive your savings

Withdrawal risk: The risk that you may draw down your money too quickly in retirement

When market changes occur, it’s normal to feel stressed. Before you get too concerned, remember changes in the market are normal. Here's a few key things to consider to help you feel confident and stick to your plan.

Market volatility is normal. The markets are designed to move, which history has shown again and again. A few things that can impact changes in the market are supply and demand, lower than expected earnings, raising interest rates and a “bear market.” It's important to stay steady and stay invested.

Time, not timing, is a better approach. Experts say that predicting the market is like predicting the weather — you never know what exactly will happen. Without knowing the exact moment to buy or sell, it would be easy to miss the market which could be costly. 

Diversification

Diversification is an important component of managing risk. It means spreading your money within each of the different asset classes to give you a wide variety of investments within a portfolio. For example, in the stock asset class, by investing in different industries, companies, size of companies and counties within the that asset class, you are improving your  chances for growth because your savings isn’t relying on any one stock. Same for the bond and cash asset classes, you can invest in different types of bonds of cash instruments. 

Investing through dollar cost averaging

By participating in an employer-sponsored retirement program, investors are automatically utilizing the dollar cost averaging strategy which can help you take advantage of the market ups and downs. By buying smaller amounts of shares on a regular basis, you are buying extra shares when the price is lower and fewer shares when the price is higher.

Review and rebalance

It’s a good idea to revisit and review your investments at least once a year. Over time, the asset allocation in your portfolio may change due to market performance. For example, you may have initially allocated 60% stocks, 30% bonds and 10% cash, but over the course of a year your portfolio may have shifted to 55% stocks, 25% bonds and 20% cash. Rebalancing allows you to put back your asset allocation to where you originally intended.

Additionally, you may want to adjust your asset allocation over time as your risk tolerance changes.