Diversification: an investment strategy
for retirement savings
It’s likely you have seen a television game show where the contestant has to decide
between one door or another. Behind one door lies a dream vacation, while behind the
other door there might simply be a coconut. The contestant has to choose a door, even
though choosing the wrong door means that he or she could walk away empty-handed.
Within a retirement portfolio, unlike the game show contestant, you are not confined to
selecting only one option to help ensure you don’t end up at retirement empty-handed.
Retirement plans typically offer numerous investment options for you to choose from. It is
important to review the available investment options within the retirement plan and make
elections that are right for you — based on your personal situation, your investment
strategy, and your degree of tolerance for risk. One key to moving toward a more secure
financial future may be splitting your contributions among several different investment
options from various asset categories. This is called diversification.
Diversification is used to reduce risk by spreading your contributions across different
investment options. By doing so, you may still be able to get a return that will help meet
your goals, while helping reduce your potential risk.
Reasons to diversify your investment direction include:
• Helps to minimize the potential risk of a single investment option, decreasing the total
value of the account balance.
• May guard against the risk of outliving retirement savings.
• Provides investment option opportunities both domestically and in foreign markets.
• May help you to diminish inflation risk.
Investment Category
Chart A
Chart B
International Equity
Small/Mid U.S. Equity
Large U.S. Equity
Fixed Income
Short-Term Fixed Income
No investment strategy, such as diversification or asset allocation, can guarantee a profit or
protect against loss in periods of declining value.
If the Small/Mid U.S. Equity investment option in Chart A were to lose its value, the
overall balance of the portfolio would drop by the same amount. However, if the
Small/Mid U.S. Equity investment options were to lose its value in chart B, it is possible
that the other investment options, especially those with less risk, might not drop in value
and therefore could help minimize the drop in total portfolio value.
The way you achieve diversification is by allocating retirement funds among different
investment options from various asset categories, which is called asset allocation. By
doing so, you make the savings in the plan more diverse and end up electing the level of
risk with which you are more comfortable.
Selecting the right mix of investment options doesn’t have to be a game, either. We have
resources available to help you with these decisions.
You can find more information by visiting the Principal Financial Group® website at
principal.com or by calling The Principal® at 800-547-7754 to:
• Review your investment allocation.
• Review your account balance.
• Work with a retirement specialist, who can provide general assistance with investment
option questions.
WE’LL GIVE YOU AN EDGE®
Principal Life Insurance Company, Des Moines, Iowa 50392-0001, principal.com
While this communication may be used to promote or market a transaction or an idea that is discussed in the publication, it is intended to
provide general information about the subject matter covered and is provided with the understanding that The Principal is not rendering legal,
accounting, or tax advice. It is not a marketed opinion and may not be used to avoid penalties under the Internal Revenue Code. You should
consult with appropriate counsel or other advisors on all matters pertaining to legal, tax, or accounting obligations and requirements.
Insurance products and plan administrative services are provided by Principal Life Insurance Company,
a member of the Principal Financial Group®, (The Principal®) Des Moines, IA 50392.
Investment options are subject to investment risk. Shares or unit values will fluctuate and investments, when redeemed,
may be worth more or less than their original cost. It is possible for an investment option to lose value.
PQ7199-06 | ©2011 Principal Financial Services, Inc. | t11071802el | 07/2011