My guest writer is Sharon Smith who is a financial writer associated with Oak View Law Group

A strategic asset allocation is most vital for investing safely in a pension fund. A benchmark regarding the asset allocation can be set according to a strategic planning put forward by a financial planner along with important inputs from the personal philosophies of the investor. The major goal in a pension fund is to achieve a safe investment policy, as these funds should last the investor all over his retirement period, which today can be more than 20 years.

What is asset allocation?

Most simply put, asset allocation means putting portions of your money into various investments such as bonds and stocks. In case any of your investments lose value, a proper allocation of your money to various and diversified investments can reduce the impact of loss.

Why and how diversification works?

Have you ever given a thought as to how much amount should you invest in bonds, stocks and how much are you saving in cash? How to decide on which investments to put into your retirement plan? The decisions that you take now, will determine the future of your finances after your retirement.

The value of investment will definitely fluctuate at different times. When one investment is gaining value, the other may drop significantly. If you put all your money in a single investment, it is prone to be at risk. Your returns would be solely based on the ups and downs of the market value of that particular investment. This is also true for several investment paths with a high correlation amongst themselves (e.g. 2 pharmaceutical companies stocks, gold and silver)

The best strategy is to diversify your investment as that will reduce its overall volatility (i.e. reduce the correlation between the different investments). On the other hand, you should not over-diversify, as you will find yourself struggling with too many lines to manage.

The financial market, not only in US, but all over the world is very prone to severe fluctuations. You should aim for a balanced investment mix, which would not only support you in retirement, but also shield you from the ups and downs of such market fluctuations, and thus support your safe investment strategy.

How to find the right kind of investment plan?

Sit with your financial planner and set up a customised safe investment- savings plan. Assess your overall financial situation like, how much is your financial need, what is your risk tolerance etc.

In other terms, use some wisdom and stick to an asset allocation that will focus on delivery of steady returns, no matter what the financial environment is.

Investors however should very carefully consider the objectives, risks, charges and expenses of the American Funds. These details as well as other information are available in the individual fund’s prospectus. These should be read very minutely and carefully before investing.

How to monitor your investment plan?

Monitoring is an important part of all financial plans, as the investor can examine the result of the strategy he has defined and measure the results against the defined benchmark.

We recommend that you will examine your pension asset allocation once a year, and make sure that the proportions in the fund are well balanced and aligned with your preferences. Do spend some time on the management fees you are paying and the fund manager (unless you are managing the funds by yourself, of course…)