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Putting Class Into Your Investment Objective

Life would be pretty dull if your entire wardrobe consisted of brown pants, a white shirt, and a pair of sensible shoes. Fortunately, you have a wide variety of clothing styles to choose from. This diversity allows you to make a personalized fashion statement every time you get dressed.

There also are a wide variety of investments to choose from, and they fall into broad categories called asset classes. By spreading your money across different asset classes, you can personalize your portfolio with investments that complement your goals.

There are three main asset classes:

• Stocks or stock funds
• Bonds or bond funds
• Short-term investments or money market funds

Historically, each asset class has produced different returns (see the performance chart below). So each asset class can be loosely tied to a particular investment objective.

Value of $1 invested at year-end 1971. Assumes reinvestment of income and no transaction costs, investment management fees or taxes. Stocks are represented by the S&P 500 total return; bonds are represented by the U.S. Long-term Corporate total return; and short-term investments are represented by the U.S. 30-day Treasury Bill total return. Historic performance is not necessarily indicative of actual future investment performance, which could differ substantially. Investment return and principal value may fluctuate so that your investment, when redeemed, may be worth more or less than the contributions to your individual account. This illustration is hypothetical and for demonstration purposes only, and is not necessarily indicative of the performance of any investment. Used with permission. ©2001 Ibbotson Associates, Inc. All rights reserved. [Certain portions of this work were derived from copyrighted works of Roger G. Ibbotson and Rex Sinquefield.]

To keep this simple, let's focus on four different investment objectives (in reality, there are many more objectives with subtle differences). The objectives are listed from highest market risk to lowest market risk. Here's how each asset class relates to each objective.