Investing Spotlight

Watching the stock market can make your stomach churn. But you shouldn't avoid the market because stocks can help your long-term savings outpace inflation. There is a way, however, to reduce your risk while improving your potential returns: diversification.

By diversifying among several types of investments, you'll smooth out the risk while having the opportunity to benefit from the gains. Since no one knows which type of investment will do well next, you should spread your money among mutual funds that invest in various types of stocks and bonds.

This means keeping some money in stock funds that invest in foreign as well as U.S. firms, and funds that pick companies from each size group—large, medium, and small. You'll be prepared no matter which type takes off next, and you might not be hit too hard if one group has a tough year.

Time frame and risk. Your blend of investments should vary with your time frame. If you won't need the money for a long time, you can afford to invest more of it in stocks. On average, stocks have performed better than bonds over the long run, but they also have wider fluctuations in value over the short term. Also consider your risk tolerance—how comfortable you are with these fluctuations. As your goal gets closer, shift more money into fixed-income investments, which tend to have more stability but lower average returns.

An easy way to diversify. It takes frequent monitoring to manage a well-diversified portfolio. ICMA-RC's Guided Pathways™ services can help you develop a retirement-savings plan, select the funds, and monitor your investments. To get started with Guided Pathways go to the Guided Pathways sign-up in Account Access or contact the Guided Pathways™ team in Investor Services.

*Investment advice and analysis tools are offered to participants through ICMA-RC, a federally registered investment adviser. Ibbotson Associates, a federally registered investment adviser and a wholly owned subsidiary of Morningstar, Inc., is not affiliated with ICMA-RC. All rights reserved. Ibbotson and the Ibbotson logo are trademarks or service marks of Morningstar, Inc.