Roy said diversifying and periodically rebalancing portfolios can help moderate declines during drawdowns and potentially help portfolios recover more quickly as markets rebound. Following the 2008–09 market decline, a 60% equity/40% bond portfolio declined less dramatically and recovered 17 months ahead of the S&P 500 index.
Moreover, she noted that the defined contribution landscape has improved since 2008. She explained that there are tools to help investors diversify effectively and stay the course, and plan sponsors are increasingly using them to help improve participant retirement outcomes. The use of automatic enrollment has also increased.
“These tools are designed to help working Americans begin saving early, contribute consistently and maintain a diversified portfolio that gradually decreases risk assets as participants near retirement,” she said