Silver Thatch gets a lot of questions from members about how their savings are invested. When market returns are down, as they are now, members wonder why the plan stays the course and doesn’t quickly shift some savings into the most conservative portfolios.
Like the Caribbean Sea, financial markets can be highly unpredictable at times, and investors can expect to see some losses over short-term periods. However, market history shows positive growth over the long-term. As a pension plan, Silver Thatch invests to suit members’ best financial interests, and generally does not change investment policies based on short-term ups or downs.
The number crunchers and retirement experts say the best approach is to stick with a diverse portfolio rather than chasing after safety or high returns. By staying the course you’re less likely to “buy high and sell low,” and you don’t lose out on big jumps in the markets when they do occur. For instance, the S&P 500 U.S. equity index earned a 9.85% average annual return from 1995 through 2014. However, missing the 10 best market performance days during the same period would have reduced the average annual return to just 6.1%. That’s a 38% reduction in performance.
The experts also recommend contributing regularly – like you do with your payroll contributions to Silver Thatch. This ensures that when values are low,you stand a better chance of higher growth.
Silver Thatch invests your savings using a strategy called “lifecycle investing.” Your basic contributions are invested in a mix of three portfolios – Growth, Balanced, or Conservative – suited to your current age, income range and marital status. As you grow older, your income changes or your marital status changes, your money is transferred automatically to the appropriate mix of investments.
When you are younger and in the earliest stage of your career, your savings are generally directed into the Growth portfolio. This is mainly invested in stocks. This higher-risk/higher-return mix takes advantage of the long-term trend of positive returns for stocks. And because younger members have a longer investment horizon, there is time to recover from any short-term market losses.
By middle age or mid-career, your savings are slowly shifted to the Balanced portfolio which is invested in a medium-risk/medium-return mix of both stocks and bonds. The Balanced portfolio is designed to help ease your savings toward slightly more conservative investments while maintaining
By the time you are an older, late-career member, your savings are gradually shifted into the Conservative portfolio with a mix of more bonds and fewer stocks. This lower-risk/lower-return portfolio is intended to help to protect your savings balance by minimizing negative returns as you near retirement – when you have less time to recover from possible short-term losses.
There is one exception to Silver Thatch’s lifecycle investing approach. You are free to choose how your additional voluntary contributions (AVCs) are invested. In addition to the Growth, Balanced and Conservative portfolios, you also have the option to direct your AVCs into the Aggressive portfolio. The more AVCs you hold, the greater your say in how your Silver Thatch savings are invested.