The core fund lineup offers funds in the major asset classes that range across the risk and return spectrum. A significant decision if you decide to build your own portfolio is determining the asset allocation and finding the right balance of investments to meet your specific goals. Because the investment options on the core fund lineup can change periodically, it is best to access the most up-to-date information through your Retirement Savings Plan online account at surs.org/login.
A description of the major asset classes is outlined below:
Capital Preservation: This conservation option is intended to offer safety of principal and stability of growth in principal and earned interest that does not fluctuate with the stock and bond markets.
- Fixed Account/Stable Value funds invest in diversified bond portfolios and uses contracts from banks and insurance companies to protect against a decline in yield or loss of capital. These funds are designed to preserve capital and deliver steady returns with volatility similar to that of money market funds or other cash instruments.
- Money market funds invests primarily in low-risk, short-term securities that mature in 397 days or less. This includes treasury bills, government securities, certificates of deposit and other highly liquid, safe securities. Money market rates are highly dependent on short-term interest rates.
Bonds: Bonds are basically loans in which the borrower agrees to pay back principal, plus interest (income), by a certain time. The borrower’s ability to repay typically impacts the bond’s rate. Bonds are closely tied to changes in interest rates – i.e., when rates fall, bond prices rise – and are considered less risky than stocks in general.
- Intermediate-term core bonds invest primarily in investment-grade U.S. fixed income issues including government, corporate, and securitized debt, and hold less than 5% in below-investment-grade exposures.
- Inflation-protected bonds are fixed income securities whose principal value is periodically adjusted according to the rate of inflation and thus, are designed to protect investors from the decline of their purchasing power.
- Multisector bonds seek income by diversifying their assets among several fixed-income sectors, usually U.S. government obligations, U.S. corporate bonds, foreign bonds, and high-yield U.S. debt securities.
- High yield bonds invest in corporate bonds rated below BBB- from S&P or Baa3 from Moody’s to offer higher coupons than government bonds or high-grade corporate bonds and have the potential for price appreciation.
Equity: Stocks represent equity or ownership in a corporation. If an investor owns stock in a company, they own a piece of that company. Stocks have historically produced the highest returns; however, they also carry the most risk, with a tendency towards greater price swings – highs and lows – that makes them more volatile than either fixed accounts or bonds. Equity funds can be categorized by:
- Market Capitalization (or the total dollar value of all outstanding shares of a company)
- Large Cap Funds are representative of the overall U.S. stock market in size, growth rates, and price. Stocks in the top 70% of the capitalization of the U.S. equity market are defined as large cap.
- Mid-Cap Funds invest in stocks of medium-sized companies. The market capitalization range for U.S. mid-caps typically falls between $1 billion and $8 billion and represents 20% of the total capitalization of the U.S. equity market.
- Small-Blend Funds invest in stocks of small companies. Stocks in the bottom 10% of the capitalization of the U.S. equity market are defined as small cap
- Investment Style
- Value is defined based on low valuations (low price ratios and high dividend yields) and slow growth (low growth rates for earnings, sales, book value, and cash flow).
- Blend is assigned to portfolios where neither growth nor value characteristics predominate.
- Growth is defined based on fast growth (high growth rates for earnings, sales, book value, and cash flow) and high valuations (high price ratios and low dividend yields).
- Specialty funds (invest primarily in the securities of a particular industry, sector, type of security or geographic region)
- Real Estate Investment Trust (REIT) funds invest in companies that own or finance income-producing real estate across a range of property sectors.
- Environmental, Social and Governance (ESG) funds are portfolios of equities and/or bonds in which ESG factors have been integrated into the investment process.
- Target date funds hold a mix of stocks, bonds, and other investments. Over time, the mix gradually shifts according to the fund’s strategy. A typical target-date fund will grow more conservative as it approaches the target retirement age.