• Different assets have different characteristics. For example, bonds may be historically less volatile than stocks, but average returns may be lower.
• Proper asset allocation can potentially reduce overall volatility and the likelihood of making an emotionally driven decision based on weakness in any one asset class.
• Your asset allocation should be revisited over time, especially if you experienced changes in your current situation, retirement goals or time horizon.
• Even if your situation hasn’t changed, you may want to rebalance your 401(k) to its target allocation regularly, as uneven performance among asset classes over time can change your weighting.

• Investments with high correlation tend to behave the same way under the same market conditions. Holding investments with lower or negative correlation to one another ideally helps to insulate against cyclical volatility or weakness in any specific sector.
• Simply holding investments in several different companies, even those within different asset classes, doesn’t automatically mean you are well-diversified. The philosophy and specific holdings of each investment should be examined.
• The information you need to make an informed investment decision within your 401(k) can be found in several places, including the investment managers’ websites and prospectuses and through third-party investment analysts.

• Some employers are introducing alternative investments – which can include commodities, managed futures, currencies, Treasury Inflation Protected Securities, real estate, REITs, private equity and hedge funds – as options for their plans.
• Alternative assets generally exhibit lower correlation to traditional investment asset classes but can also entail significantly greater risk.*
• If your plan’s investment options are too limited for your needs or preferences, you may be able to roll your 401(k) assets over into a self-directed IRA. Even if you can’t, you may consider contributing less to the 401(k) and opening a separate IRA for greater flexibility.

Times have definitely changed for investors, and so should the way you think about the principles you may have used when you built your 401(k). Your financial advisor can help you evaluate your current holdings to determine if they are aligned with your goals.

* Alternative investments by themselves can entail extremely high risks, which are generally not suitable for most investors. However, utilized as a small percentage with an already diversified portfolio, they can help to reduce market risk. Factors such as your personal situation, investment time horizon and income liquidity needs should influence your decision when evaluating alternative asset fund options and their appropriateness for you. Asset allocation and diversification neither guarantee a profit nor ensure against a loss in a declining market.

Robert W. Baird & Co. does not provide tax services. Please consult with your tax professional.