Considering the impact of inflation across different participant types.
A do-it-for-me investor prefers to delegate to a professional who will devise an asset allocation strategy, where inflation will be taken into consideration. A do-it-myself investor prefers to build a portfolio from the investment options in the plan and will use a core investment menu to address inflation.
Professionally managed options, like target date funds and managed accounts, typically include inflation-sensitive asset classes in the glidepath near retirement or may personalize an account to an individual’s circumstances. Core investment options will incorporate a diversified array of options ranging from equities to capital preservation.
Younger participants with a long-term time horizon may view equities as an appropriate hedge against inflation, while older participants with a short-term time horizon may place emphasis on income or capital preservation.
Revisiting DC Investment Structure
It is important to have the right investment structure in place, with professionally managed options for participants who wish to delegate and diversified building blocks for those who wish to construct their own portfolios.
Ongoing communications with plan participants can help a plan steady the course during periods of volatility and inflation.
Evaluate Rebalancing Tools
The incorporation of professionally managed options already include rebalancing tools; however, participants who construct their own portfolios will need to evaluate what rebalancing tools are available to them.
Participation and Savings First and Foremost
A DC plan should be treated as a long-term savings vehicle helping participants reach their desired retirement goals.
Asset Allocation and Value of Diversification
There are important factors to consider when deciding asset allocation and whether to incorporate diversification. Over the long-term, public equities may serve as the best match to inflation but for those closer to retirement, a more diversified, age-appropriate asset allocation may be preferred.
The Importance of Rebalancing
Those who consider themselves to be do-it-yourself investors must remember to rebalance their portfolio or they may unintentionally be out of sync with their original asset allocation.