One common mistake is focusing on the total retirement account balance rather than the individual investments that make up the account. Take a closer look at your plan and you’ll notice that you have a variety of investment options to choose from. This much choice may seem intimidating, but you can make these options work to your benefit. Historically, investments of all types move in cycles. Take a look at the chart below, it shows the annual rates of return from 1996-2005 for six major investment categories. Can you identify any patterns?

We couldn’t either…because there aren’t any! Let’s take a look at the large-cap asset class in the chart above. Beginning in 1996, this investment type experienced very high returns, yet four years later its returns had decreased. Investments that may be high performers for one or two years may quickly be outperformed next year. There are many influences that determine the successes, or failures, of so many investment types. This is why financial markets can be so unpredictable. So, what can you do to make sure you choose the investment options that will help you realize your retirement goals?

Figure out what’s right for you
Investment objectives, comfort level with risk, and years until you begin accessing your retirement dollars are all factors to be considered—yet frequently overlooked—when choosing where to direct the money in your retirement account.

While there isn’t such a thing as a “perfect investment,” but there is a strategy called “asset allocation” that can potentially benefit your retirement account. Taking advantage of multiple investment options provides you with the ability to cushion yourself from the swings in the market. This is important because different asset classes perform differently—while one asset class is experiencing positive returns, another may be experiencing returns that are somewhat more moderate or poor. By investing in these options, you have created the opportunity for your retirement account to “balance” out the two extremes taking place in the market.

Application of asset allocation and diversification concepts do not ensure safety of principal and interest.  It is possible to lose money by investing in securities.

Remember the big picture
The key to investing for retirement is remembering to look at the big picture. It isn’t just about trying to predict the performance of one particular investment option or worrying about losing money in your retirement account. It’s about investing regularly in a variety of options over a period of time and taking advantage of those ups and downs in the market. So, don’t panic if the performance of one of your investments dips a bit to the south—another one of your investment options may be experiencing positive returns.

Remember, trying to predict the “perfect” investment is a hobby you want to avoid. Take a look at the options offered by your retirement program and choose the ones that you feel are most appropriate for you and your goals. The only feature role your retirement savings should play is to help fund the adventures you choose to take on during your retirement years.

To learn more about the benefits of asset allocation, take the online course, “How to Choose Investments”.

Securities products and services are offered by Prudential Investment Management Services LLC (PIMS), Three Gateway Center, 14th Floor, Newark, NJ 07102-4077.  PIMS is a Prudential Financial company.

Prudential Retirement's Manager of Managers group annuity contracts are issued by The Prudential Retirement Insurance and Annuity Company (PRIAC), Hartford, CT, a Prudential Financial Company.