The employee decides where to invest his/her additional voluntary contributions (AVCs). He/she can pick from any of five professionally managed portfolios. These include the three “core” portfolios available for basic contributions (i.e., the growth, balanced, and conservative portfolios), as well as two others:
- an ultra-conservative income portfolio made up almost entirely of bonds, and
- an aggressive growth portfolio made up almost entirely of equities.
This range of five portfolios is designed to help employees select an asset mix that suits their individual investment needs and comfort level.
The employee can invest AVCs in more than one portfolio. He/she can also reallocate those AVCs at any time. Among the factors an employee should consider when investing AVCs are:
- personal investment objectives,
- comfort with investment risk,
- time until retirement, and
- personal financial position.
For details on how an employee can change the amount of AVCs he/she contributes, or where those AVCs are invested, see “Starting, stopping and reallocating AVCs“.
Using AVCs to Alter the Risk-Reward Position
An employee can use AVCs to alter the risk-reward position of his/her Silver Thatch investments – simply by investing AVCs in a way that either increases or decreases the overall percentage of his/her equity holdings.
- the employee can increase the overall percentage of his/her equity holdings by directing all AVCs to the aggressive portfolio; or
- the employee can decrease the overall percentage of his/her equity holdings by directing all AVCs to the income fund.
The more equity-based investments an employee holds, the greater the potential for investment gains in a strong market, but the greater the potential for investment losses in a weak market.
For details on investing AVCs, refer to the Smart Investor Guide.