FOR ADVISOR USE ONLY
Portfolio Allocations for Retirement
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Exploring investing strategies When deciding how to invest your clients’ retirement dollars, it is important to consider their goals as well as their tolerance for challenges such as market volatility and risk to determine what strategy or combination of strategies is most appropriate for their personal situation. It is critical to consider not only the endpoint investment goal, but also the impact to clients throughout their investing experience. Consider two different, but common strategies.
Allocations remain stable to manage volatility
Static Asset Allocation In a traditional static asset allocation approach, a portfolio targets an allocation percentage (for example, a balanced portfolio may have a 50% equity/50% fixed income split) while market volatility fluctuates. Even in a moderate portfolio, clients may experience significant volatility.
Volatility Allocations
2
Building a Retirement Portfolio Establishing a diversified asset allocation is the foundation of portfolio construction. When constructing retirement portfolios, incorporating a mix of allocation strategies can help the portfolio withstand a variety of market conditions – and may reduce the overall risk in the portfolio. The hypothetical scenarios in this piece illustrate different investment experiences as the portfolios respond to the markets’ ups and downs. Using a combination of strategies can help ensure your clients enjoy a more confident retirement.
Dynamic Asset Allocation In a dynamic asset allocation strategy, the portfolio seeks to manage volatility by adjusting equity and fixed income exposures. Although there will still be volatility, the objective of this type of strategy is to help manage the volatility to create a more stable experience for clients.
Allocations adjust to manage volatility
Volatility Allocations
2
Combining investment strategies to create a retirement portfolio can help temper the volatility in your clients’ overall portfolio.
Hypothetical portfolio strategies Static vs. Dynamic asset allocation 80% equities/20% fixed income
65% equities/35% fixed income
50% equities/50% fixed income
35% equities/65% fixed income
20% equities/80% fixed income
Static Allocation
Static Allocation
Dynamic Allocation
Static Allocation
Dynamic Allocation
Static Allocation
Dynamic Allocation
Static Allocation
Dynamic Allocation
Average Annualized Return: 8.05%
Average Annualized Return: 7.85%
Average Annualized Return: 8.20%
Average Annualized Return: 7.60%
Average Annualized Return: 7.84%
Average Annualized Return: 7.29%
Average Annualized Return: 7.44%
Average Annualized Return: 6.92%
Average Annualized Return: 7.00%
Highest Calendar Year Return: 33.57%
Highest Calendar Year Return: 30.63%
Highest Calendar Year Return: 34.67%
Highest Calendar Year Return: 27.74%
Highest Calendar Year Return: 30.78%
Highest Calendar Year Return: 24.90%
Highest Calendar Year Return: 26.99%
Highest Calendar Year Return: 22.12%
Highest Calendar Year Return: 23.28%
Lowest Calendar Year Return: -29.83%
Lowest Calendar Year Return: -24.07%
Lowest Calendar Year Return: -16.84%
Lowest Calendar Year Return: -17.94%
Lowest Calendar Year Return: -12.09%
Lowest Calendar Year Return: -11.44%
Lowest Calendar Year Return: -7.13%
Lowest Calendar Year Return: -4.56%
Lowest Calendar Year Return: -1.97%
Standard Deviation: 12.15%
Standard Deviation: 9.97%
Standard Deviation: 8.70%
Standard Deviation: 7.87%
Standard Deviation: 6.92%
Standard Deviation: 5.91%
Standard Deviation: 5.31%
Standard Deviation: 4.31%
Standard Deviation: 4.06% This illustration is hypothetical and is not meant to represent any specific investment or to imply any guaranteed rate of return.
Annual Return Comparison
40%
Annual Returns
30%
Past performance does not guarantee future results. It is not possible to invest directly in an index.
20% 10%
Diversification does not assure a profit or protect against loss.
0% -10%
Source: Morningstar Direct, March 2013
-20% -30% -40% 1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
Static allocation portfolio annual returns: Static 80/20
10.04%
0.50%
33.57%
18.92%
28.45%
24.86%
16.47%
-5.08%
-7.80%
-16.08%
23.52%
9.60%
4.47%
13.44%
5.88%
-29.83%
22.46%
13.68%
3.45%
13.66%
Static 65/35
10.00%
-0.12%
30.63%
15.95%
24.82%
21.97%
13.11%
-2.02%
-4.73%
-11.41%
19.73%
8.62%
4.12%
11.69%
6.14%
-24.07%
19.42%
12.53%
4.39%
11.90%
Static 50/50
9.96%
-0.75%
27.74%
13.03%
21.23%
19.00%
9.80%
1.07%
-1.67%
-6.61%
16.01%
7.65%
3.76%
9.97%
6.38%
-17.94%
16.34%
11.29%
5.28%
10.13%
Static 35/65
9.90%
-1.39%
24.90%
10.15%
17.70%
15.96%
6.55%
4.20%
1.38%
-1.68%
12.35%
6.66%
3.38%
8.26%
6.58%
-11.44%
13.24%
9.96%
6.11%
8.37%
Static 20/80
9.84%
-2.04%
22.12%
7.33%
14.22%
12.87%
3.35%
7.37%
4.42%
3.36%
8.77%
5.67%
2.98%
6.56%
6.77%
-4.56%
10.11%
8.55%
6.89%
6.59%
Dynamic allocation portfolio annual returns: Dynamic 65/35
10.04%
0.34%
34.67%
17.75%
24.07%
17.55%
10.42%
-0.16%
-4.76%
-10.82%
20.25%
9.08%
4.57%
13.80%
6.85%
-16.84%
15.67%
10.94%
3.44%
9.90%
Dynamic 50/50
10.00%
-0.39%
30.78%
14.39%
20.67%
15.60%
7.77%
2.52%
-1.74%
-6.18%
16.39%
8.00%
4.16%
11.57%
6.93%
-12.09%
13.40%
10.00%
4.50%
8.60%
Dynamic 35/65
9.94%
-1.13%
26.99%
11.09%
17.31%
13.59%
5.15%
5.23%
1.30%
-1.41%
12.61%
6.92%
3.74%
9.37%
6.98%
-7.13%
11.15%
9.02%
5.53%
7.30%
Dynamic 20/80
9.87%
-1.89%
23.28%
7.85%
14.00%
11.52%
2.56%
7.95%
4.36%
3.50%
8.91%
5.82%
3.19%
7.19%
7.00%
-1.97%
8.90%
7.99%
6.54%
5.99%
Average annual equity exposure:
3
Dynamic 65/35
86%
80%
85%
74%
62%
55%
53%
54%
57%
57%
66%
76%
86%
83%
70%
49%
43%
50%
54%
59%
Dynamic 50/50
66%
61%
66%
57%
47%
42%
41%
42%
44%
44%
51%
58%
67%
64%
54%
38%
33%
39%
42%
45%
Dynamic 35/65
46%
43%
46%
40%
33%
30%
29%
29%
31%
31%
36%
41%
47%
45%
38%
26%
23%
27%
29%
32%
Dynamic 20/80
26%
25%
26%
23%
19%
17%
16%
17%
18%
18%
20%
23%
27%
26%
22%
15%
13%
16%
17%
18%
RiverSource methodology for calculation of returns: Static portfolios: 80% equities/20% fixed income portfolio based on 80% S&P 500 index and 20% Barclays U.S. Aggregate Bond Index; 65% equities/35% fixed income portfolio based on 65% S&P 500 index and 35% Barclays U.S. Aggregate Bond Index; 50% equities/50% fixed income portfolio based on 50% S&P 500 index and 50% Barclays U.S. Aggregate Bond Index; 35% equities/65% fixed income portfolio based on 35% S&P 500 index and 65% Barclays U.S. Aggregate Bond Index. Dynamic portfolios: For each portfolio, a targeted implied volatility is divided by the average daily value of the previous month’s implied volatility to determine the equity weight and fixed income weight for the following month. The implied volatility targets are: 13 for the Dynamic 65/35 portfolio; 10 for the Dynamic 50/50 portfolio; 7 for the Dynamic 35/65 portfolio; 4 for the Dynamic 20/80 portfolio. The equity weight is multiplied by the returns of the S&P 500 Index and the fixed income weight by the returns of the Barclays U.S. Aggregate Bond Index. All figures are based on the total returns of each index from 1993 – 2012.
In general, equity securities tend to have a greater price volatility than debt securities. The market value of securities may fall, fail to rise, or fluctuate, sometimes rapidly and unpredictably. Market risk may affect a single issuer, sector of the economy, industry, or the market as a whole. There are risks associated with fixed income investments, including credit risk, interest rate risk, and prepayment and extension risk. In general, bond prices rise when interest rates fall and vice versa. This effect is more pronounced for longerterm securities. RiverSource Life Insurance Company 9549 Ameriprise Financial Center Minneapolis, MN 55474
For advisor use only. This material has not been filed with FINRA and may not be reproduced or quoted to, or used with, members of the general public. RiverSource Life Insurance Company cannot guarantee future financial results.
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