SUMMER 2025
A Quarterly Benefits Publication from the Administrative Office
pension • health & welfare • vacation • annuity
ANNUITY: WHAT IS A TARGET DATE FUND AND HOW DOES IT WORK?
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strategy for you. On the other hand, investing solely in more conservative options may be appropriate for short-term financial goals.
The Southwest Carpenters Annuity Fund offers a range of options for self-directing the investment of your annuity contributions. These investment options can be divided into three asset classes: 1. Equities (stocks): Investing in equities means owning a piece of a company and sharing profits or losses. Historically, equities have the largest returns but also the greatest risk among the three major asset classes. 2. Fixed income (bonds): Investing in bonds is basically lending money to a government or a company in exchange for a fixed rate of interest. Fixed income investments are generally less volatile than equities, but some bonds are riskier than others. 3. Cash Alternatives: Short-term instruments like money market funds and Treasury bills are designed to maintain a stable value but offer lower returns. Risk vs. Reward When it comes to investing, risk and reward go hand in hand. Stocks, for example, carry more risk than bonds and cash alternatives. The reward for taking on a higher risk is the potential for a higher return. If your financial goal has a further horizon into the future, then investing a greater portion of your assets in riskier investment options may be the
Managing Risk There are several risks that retirement investors face. One is the risk of outliving your money. Another risk is the potential for a significant decline in the financial markets. Finally there is inflation, which is the risk of rising prices eroding the purchasing power of your savings and investments. Asset allocation is the process of deciding what percentage of your money to invest in stocks, bonds, and cash alternatives. Investing in a mix of asset classes can help balance the risk and return characteristics of your portfolio. Should market conditions cause one of your investments to perform poorly, not all your money will be adversely affected. Once your asset allocation is determined, it’s recommended that you periodically rebalance your portfolio to maintain the desired percentage of assets in each class. However, your asset allocation may need to change over time. For example, if you are 40 years from retirement, you might allocate 94% to stocks and 6% to bonds. When you are 20 years from retirement, you might reduce the stock percentage to 75% to minimize the impact of a potential downturn in the market, with 25% allocated to bonds. Asset allocation and rebalancing are usually the responsibility of the investor. However,
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