Market Fluctuations Can Cause Allocation Drift

Chart of the Week for October 19-25, 2001

Investors seeking the benefits of diversification usually allocate their holdings across stocks, bonds, and cash, according to their time horizon and risk tolerance. Doing so reduces volatility and helps stabilize returns. However, over time, market fluctuations cause allocations to drift, overweighting one asset class while underweighting another. In the short run, this may not be significant, but, in the long run, it can cause the portfolio’s risk level to become mismatched with the investor’s objective. It’s a good idea for investors to review their portfolios for allocation drift at least annually (more frequently in volatile markets), and make adjustments if necessary.

Investing in lifestyle funds is a great way to ensure a proper allocation. The Vantagepoint Model Portfolio Funds offer the convenience of predetermined allocations for the most conservative to the most aggressive investor with the benefit of regular rebalancing. Please see the Investing for Your Retirement guide in our Charting Your Course series to learn more about the role asset allocation and the Vantagepoint Model Portfolio Funds can play in your retirement plan.

* This information is being provided for educational purposes and is not intended to be construed as or relied upon as investment advice. ICMA-RC does not offer specific tax or legal advice. Individuals are advised to consider any new investment strategies carefully prior to implementing. Past performance does not guarantee future results. Investment returns and principal value will fluctuate, so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data illustrated. For performance data current to the most recent month end, contact ICMA-RC Services, LLC by calling 1-800-669-7400 or by writing to 777 North Capitol Street, NE, Washington, DC 20002-4240, or by visiting www.icmarc.org. Please consult both the current Vantagepoint Funds prospectus and MAKING SOUND INVESTMENT DECISIONS: A Retirement Investment Guide carefully for a complete summary of all fees, expenses, charges, financial highlights and investment objectives, risks and performance information prior to investing any money. Vantagepoint securities are distributed by ICMA-RC Services LLC, a broker dealer affiliate of ICMA-RC, member NASD/SIPC. For a current prospectus, contact ICMA-RC Services LLC, 777 North Capitol Street NE, Washington, DC 20002-4240. 1-800-669-7400.