Risk Management and Your Retirement Savings Plan

Posted by Busey Bank on Jul 11, 2023 9:30:00 AM
Busey Bank

By investing for retirement through your employer-sponsored plan, you are taking the first of many important steps to secure your financial future. However, choosing to participate is just one piece of your financial management strategy—you will also need to manage risk within your account to help it stay on track.

A man sits at a table looking at paperwork with a pen in his hand.

Familiarize yourself with the different types of risk

All investments, even the most conservative, come with different types of risk. Understanding the potential pitfalls will help you make educated choices in your retirement savings plan mix, including:

  • Market risk: The risk that your investment could lose value due to falling prices caused by outside forces, such as economic factors or political and national events. Stocks are typically most susceptible to market risk, although bonds and other investments can be affected as well.
  • Interest rate risk: This can become an issue if you stay on the short-term end of investments.
    • Typically, you are rewarded with higher interest rates for locking in for a longer time frame. You could be foregoing higher rates if you consistently wait for higher rates.
    • Or conversely, locking in long-term rates, only to have the rates be much lower when the investment matures.
  • Inflation risk: This is the possibility that your investments may not keep pace with inflation, or the rising cost of living. Investing too conservatively may put your investment dollars at risk of losing their purchasing power.
  • Liquidity risk: This is the risk of not being able to quickly sell or cash-in your investment if you need access to the money.

Know your personal risk tolerance

How much and which types of risk are you willing to take to pursue your savings goal? Gauging your personal risk tolerance is an important step in your management strategy. As all investments involve some level of risk, it's important to be aware of which ones you can comfortably withstand before you select investments.

Develop a target asset allocation

Once you understand your risk tolerance, the next step is to develop an asset allocation mix that is suitable for your investment goal while taking your risk tolerance into consideration.

Asset allocation is the process of dividing your investment dollars among the various asset categories offered in your plan, typically equities (i.e. stocks), fixed income and cash/stable value investments.

Your time horizon should also help guide you in determining your asset allocation. If you're a young investor with a hardy tolerance for market risk, you might choose an allocation with a high concentration of stocks because you may be able to ride out short-term swings in the value of your portfolio in pursuit of your long-term goals. On the other hand, if retirement is less than 10 years away, you might be taking a more conservative approach with your stock, bond and cash allocations.

Consider diversifying

All investors can potentially benefit from diversification, which means not putting all your eggs in one basket. Holding a mix of different investments may help your portfolio balance out gains and losses and offset some of the other types of risk.

Understanding dollar cost averaging

Your employer-sponsored plan also helps you manage risk automatically through a process called dollar cost averaging (DCA). When you contribute to your plan, chances are you contribute an equal dollar amount each pay period, and that money is then used to purchase shares of the investments you have selected. This process—investing a fixed dollar amount at regular intervals—is DCA. As the prices of the investments you purchase rise and fall over time, you take advantage of the swings by buying fewer shares when prices are high and more shares when prices are low. Statistically, the average cost you pay for the shares you accumulate may be lower than if you had purchased all the shares in one lump sum.

Remember that DCA involves continuous investment in securities regardless of their price. As you think about the potential benefits of DCA, you should also consider your willingness to make purchases through extended periods of low or falling prices.

Perform regular maintenance

Although it's generally not necessary to adjust your retirement portfolio too frequently, it is advisable to monitor it at least once per year and as major events occur in your life. During these reviews, you'll want to determine if your risk tolerance has changed and check your asset allocation to determine whether it's still on track. You may want to rebalance—or shift some money from one type of investment to another—to bring your allocation back in line with your original target, presuming it still suits your situation. Or you may want to make other changes in your portfolio to keep it in line with your changing circumstances. Such regular maintenance is critical to help manage risk in your portfolio.

When developing a plan to manage risk, it may also help to seek the advice of a financial professional like those with Busey Wealth Management. An experienced professional can help take emotion out of the equation so that you may make clear, rational decisions.

To learn more about Busey Wealth Management’s comprehensive services, visit busey.com/wealth-management.


This is not intended to provide legal, tax or accounting advice. Any statement contained in this communication concerning U.S. tax matters is not intended or written to be used, and cannot be used, for the purpose of avoiding penalties imposed on the relevant taxpayer. Clients should obtain their own independent tax advice based on their particular circumstances.

This material is provided for educational purposes only and should not be construed as investment advice or an offer or solicitation to buy or sell securities.

This presentation is for general information purposes only. It does not take into account the particular investment objectives, restrictions, tax and financial situation or other needs of any specific client.

Investment products and services through Busey Wealth Management are:
Not FDIC INSURED | May lose value | No bank guarantee


Topics: Wealth, Retirement Planning

Join the online Busey community and leave a comment below!

Busey Bank knows Your Money Matters

Money Matters, a financial blog designed to provide insights, resources and tips from the financial experts at Busey, covers a variety of topics to help you realize your financial goals. Topics are focused on Busey's five lines of business—personal, mortgage, commercial, cash management and wealth management. 

New content is added regularly to deliver up-to-date information in today's evolving financial landscape. We encourage you to subscribe to Money Matters to ensure you don't miss helpful tips and how to's as they become available.

Subscribe Here!

Recent Posts