Spring cleanup: Tend to your retirement

As the weather begins to warm up, many people turn to their neglected gardens to prune and restore order to their flower beds. This is also a great time to do a spring cleanup on your portfolio, checking that you're staying on track for retirement and restoring order with your asset allocation.

Asset allocation refers to the portion of your portfolio divided—or allocated—between the three major asset classes of stocks, bonds, and cash. Allocating your portfolio across different types of investments can help you breathe easier during market downturns because when one investment is down, a different one may be up. The same principle is true for diversifying across stock or bond sectors.

Follow a plan to meet your goals
For your retirement portfolio, your ideal asset allocation plan is based on the number of years until you retire and your comfort with risk. This will help you set the mix of stocks, bonds, and cash in your portfolio. Each type of investment offers different benefits for your portfolio:

• Stocks have the greatest growth potential, particularly to fight inflation.
• Bonds offer income potential and stability
• Cash is the most stable for preserving capital.

Take a look at the models below. Within each slice of your portfolio pie, check that your holdings are diversified, with stock exposure across large- and small-cap companies, sectors, and countries, for example.

Revisit and nurture that plan
Once you have a plan in place, revisit it once a year to compare each slice of your pie with its original target. One rule of thumb is to rebalance when an asset class is more than five percentage points away from where you intended for it to be (its target) by selling the winning asset class and putting those proceeds into the losing asset classes. Getting back to your target asset allocation can restore the risk profile of your portfolio and keep you on track to meet your retirement goals.

Stock fund values fluctuate in response to the activities of individual companies and general market and economic conditions. Bond fund values fluctuate in response to the financial condition of individual issuers, general market and economic conditions, and changes in interest rates. In general, when interest rates rise, bond fund values fall and investors may lose principal value. Some funds, including nondiversified funds and funds investing in foreign investments, high-yield bonds, small- and mid- cap stocks, and/or more volatile segments of the economy, entail additional risk and may not be appropriate for all investors. Consult a fund's prospectus for additional information on these and other risks.

Asset allocation and diversification do not assure or guarantee better performance and cannot eliminate the risk of investment losses.