Diversification

The Successful Investor’s Not-So-Secret Weapon: DIVERSIFICATION

A properly diversified portfolio can help you protect your retirement savings against less-than-favorable market performance, while continuing to build a nest egg for your future.

Retirement savings are sacred - the hard-earned dollars destined to provide for us in our golden years - and most people hesitate to take "crazy risks" with these funds. So, when the stock market hits a bumpy patch and mutual fund balances dwindle, it’s only natural that investors begin to question their more aggressive portfolio holdings. However, it is important to remember that there are multiple types of investment risk, and it can be just as damaging to your retirement prospects to take an overly cautious approach to your retirement plan. Instead of panicking when the stock market takes a dip, take a good hard look at your investments.

Reviewing your retirement plan - a few things to keep in mind

  • Determine how much money you are going to need. Many experts estimate that, to maintain your standard of living in retirement, you will need a nest egg large enough to provide 80% of your pre-retirement income. What’s more, you’ll need this level of income for each year of your retirement - which is likely to last 20 years or more. How do you grow such a large nest egg? Bank CDs and money market funds may seem like a safe way to go, but neither of these investments offers a rate of return that will outpace inflation over the long term. To build wealth for retirement, you need the long-term growth potential the stock market can provide.
  • Diversification can help to temper stock market volatility. Regardless of the overall performance of the market, during any given time period one asset class will still outperform the others. For instance, large cap growth stocks showed superior performance in the last bull market, but more recently small-cap value stocks outperformed.* Unless you have a crystal ball, the chances are good that you won’t know the winner until it’s already crossed the finish line. With a diversified portfolio of mutual funds, you may benefit from the investments that outperform while balancing the results of the underperformers.
  • Allocate your assets based on the number of years to your goal. Not only is it important to diversify your retirement plan among a variety of asset classes - such as small- and large-cap stocks, international stocks, and fixed income securities - but you must determine what proportion of your savings should be allocated to each investment. In the short term, the stock market can be more volatile than other investments, so investors with a short time horizon - including those nearing retirement age — may want to allocate a smaller proportion of their holdings to stock funds. Younger investors can take on more short-term volatility because they have a longer investing horizon.
  • Remember, down markets can be an opportunity for investors who dollar-cost average. Dollar-cost averaging means making fixed investments at regular intervals - just like you do with your retirement plan. When the market dips, your regular contribution is able to buy more shares for your portfolio. Over time, this strategy can lower the average cost per share of your investments. (Dollar-cost averaging does not assure a profit, or protect against a loss in value. For this strategy to be effective, regular payments must be continually made over an extended period of time. Investors should carefully consider their financial ability to continue making purchases through periods of low price levels.)

This information is for general educational purposes only.
Seligman and its representatives do not provide tax, accounting, or legal advice. Any tax statements contained herein were not intended or written to be used, and cannot be used, for the purpose of avoiding US federal, state, or local tax penalties. Please consult your own independent advisor as to any tax, accounting, or legal statements made herein. Retirement plan withdrawals made prior to age 59½ may be subject to taxes and a 10% penalty.

This information is authorized for use only in the case of concurrent or prior delivery of the offering prospectus of the Fund. You should consider the investment objectives, risks, charges, and expenses of a Fund carefully before investing. A prospectus containing information about a Fund (including its investment objectives, risks, charges, expenses, and other information about the Fund) may be obtained here. The prospectus should be read carefully before investing in a Fund.

Effective November 7, 2008, J. & W. Seligman Co. Incorporated ("Seligman") was acquired by and became a wholly-owned subsidiary of RiverSource Investments, LLC, which is a subsidiary of Ameriprise Financial, Inc. As a result of the acquisition, Seligman's investment advisory contracts were transferred to RiverSource Investments and Seligman Advisors, Inc., a subsidiary of Seligman, was added as a principal underwiter and distributor of the RiverSource mutual funds.

Seligman mutual funds are distributed by Seligman Advisors, Inc., member FINRA, and managed by RiverSource Investments, LLC. Seligman Services, Inc. provides services to fund shareholders. Seligman Advisors, Inc. and Seligman Services, Inc. are wholly-owned subsidiaries of RiverSource Investments, LLC. These companies are part of Ameriprise Financial, Inc.