Model portfolio

What is a Model Portfolio?

A model portfolio is a carefully crafted, pre-designed investment mix, often developed by financial professionals or sophisticated algorithms¹ to target a specific financial objective.

• Each portfolio holds a specific mix of investments (like mutual funds) that have been selected to work together strategically

• These portfolios are typically constructed to correspond to a wide spectrum of risk objectives, ranging from very conservative to highly aggressive, allowing investors to choose an option that aligns with their comfort level for market fluctuations and personal risk tolerance.

• The goal is to provide a diversified² investment approach without requiring the investor to build their own investment portfolio from scratch.

How do model portfolios work in a 401(k)?

In the context of a 401(k) plan, model portfolios provide a simplified way for participants to invest their retirement savings.

• Your 401(k) plan provider might offer a selection of these ready-made portfolios, allowing you to choose one that best fits your personal financial situation and risk tolerance. Instead of picking individual funds, you pick a complete portfolio.

• You select a model based on your comfort with risk—for example, a conservative model for lower risk exposure, or an aggressive model for higher potential returns, but higher risk exposure 

A significant benefit of some model portfolios, like those offered by Human Interest Advisors, is their ability to automatically adjust *your* investment allocation over time..³ As you approach retirement, the portfolio's allocation will typically shift to become more conservative, reducing exposure to volatile assets and prioritizing capital preservation⁴.

Why are model portfolios beneficial for retirement savers?

Model portfolios offer several key advantages for individuals saving for retirement, particularly those who may not have extensive investment experience or time to manage their own portfolios.

• They significantly simplify investment decisions, especially for new investors or those overwhelmed by a wide array of fund choices. By selecting a single model, one can gain a diversified³ and professionally managed strategy that is aligned with their personal risk tolerances and target retirement age.

• They offer built-in diversification across various asset classes (like stocks and bonds) and potentially different market segments, helping to spread risk and potentially improve long-term returns through risk mitigation and diversification efforts.

• The automated rebalance⁴ feature, common in target-date funds and certain model portfolios, can help your retirement portfolio stays aligned with your long-term goals and evolving risk tolerance without requiring constant manual rebalancing on your part. This guided investment strategy can be highly valuable for busy individuals or those who do not have the assistance of a financial professional.

1 - Model portfolios are not guaranteed to achieve a specific return and that investment involves risk, including loss of principal. Individuals should review the specific fund prospectuses and their own  risk tolerance before investing.

2. Diversification does not ensure a profit or protect against loss.

3 - Investment Advisory services are provided through Human Interest Advisors LLC (HIA) to plans that select HIA as the investment adviser. HIA is a Registered Investment Adviser and subsidiary of Human Interest Inc. For more information on our investment advisory services, please visit http://www.humaninterest.com/hia/.

4. Portfolio rebalancing does not ensure a profit or protect against loss.