Neither asset allocation nor diversification guarantees a profit or protects against a loss in a declining market. They are methods used to help manage investment risk.
Debt securities are subject to interest rate risk, credit risk, extension risk, income risk, issuer risk and market risk. The value of U.S. government securities can decrease due to changes in interest rates or changes to the financial condition or credit rating of the U.S. government. Investments in asset-backed and mortgage-backed securities are also subject to prepayment risk as well as increased susceptibility to adverse economic developments. High-yield, lower-rated, securities involve greater risk than higher-rated securities.
Equity securities generally have greater price volatility than fixed-income securities. The market price of equity securities may go up or down, sometimes rapidly or unpredictably. Equity securities may decline in value due to factors affecting the issuer or equity securities markets generally.
Growth and value stocks are subject to the risk that returns on stocks within the style category will trail returns of stocks representing other styles or the market overall over any period of time and may shift in and out of favor with investors generally, sometimes rapidly, depending on changes in market, economic, and other factors. Growth stocks can be volatile, as these companies usually invest a high portion of earnings in their business and therefore may lack the dividends of value stocks that can cushion stock prices in a falling market. Also, earnings disappointments often lead to sharply falling prices because investors buy growth stocks in anticipation of superior earnings growth. Investments in value securities may be subject to risks that (1) the issuer’s potential business prospects will not be realized; (2) their potential values will never be recognized by the market; and (3) their value was appropriately priced when acquired and they do not perform as anticipated.
The Stock Index Fund pursues its objective by investing substantially all of its assets in another pooled investment vehicle (a “master fund”). The ability of the Stock Index Fund to meet its investment objective is directly related to the ability of the master fund to meet its investment objective. Index funds may hold securities of companies that present risks that an investment adviser researching individual securities might otherwise seek to avoid and are subject to tracking error risk.
Securities of small and medium-sized companies tend to be riskier than those of larger companies. Compared to large companies, small and medium-sized companies may face greater business risks because they lack the management depth or experience, financial resources, product diversification or competitive strengths of larger companies, and they may be more adversely affected by poor economic conditions. There may be less publicly available information about smaller companies than larger companies. In addition, these companies may have been recently organized and may have little or no track record of success. Diversification does not ensure a profit or protect against loss. It is a method used to help manage investment risk.
Foreign securities are subject to political, regulatory, and economic risks not present in domestic investments and may exhibit more extreme changes in value than securities of U.S. companies. Investing in emerging and frontier markets will be subject to greater political and economic instability, less developed securities markets, and other similar risks than in more developed markets.
Using the Asset Allocation Tool
The asset allocation tool relies entirely on the limited information you provide in response to the questions posed in the risk tolerance questionnaire, and does not take into account any other information pertaining to your particular personal financial or investment situation, to create a model portfolio and asset allocation. Homestead Funds, Homestead Advisers Corp. and Homestead Financial Service Corp. do not verify the completeness or accuracy of such information and do not further tailor the model portfolio and asset allocation to your particular circumstances.
As a result, you should not rely on the tool as a recommendation as to any asset allocation or security selection. The tool does not provide any information regarding whether or how your model portfolio and asset allocation should change over time and is not a substitute for consulting with a financial advisor. Changes in tax or benefit laws, investment markets or your own financial situation over time can cause actual results of any asset allocation made today to deviate substantially from expectations. To address this uncertainty, you should create several scenarios, with various sets of assumptions, to evaluate a wide range of possible outcomes. You may make changes to your responses and portfolio selection at any time.
The asset allocation tool is provided on a non-discretionary basis, and you are under no obligation to buy or sell any investment based on any model portfolio or asset allocation.
Payroll Deposits
Once an asset allocation model is selected, future payroll deposits will be invested according to that asset allocation model unless you direct us differently.
Deactivating an Asset Allocation Model
You may discontinue the use of an asset allocation model at any time. However, once the model that you previously selected has been deactivated, your investments in the Homestead Funds will no longer be periodically rebalanced. Should you thereafter add additional funds to your account, you will be required to select a new asset allocation model or choose the specific Homestead Funds in which you wish to invest.
Predefined Asset Allocations
The asset allocation tool and predefined mutual fund portfolios are educational tools and should not be relied upon as the primary basis for investment, financial, tax-planning or retirement decisions. The tools provide a sample of possible mutual fund portfolios based on varying degrees of market risk. These portfolios are not tailored to the investment objectives of any specific investor. The predefined portfolios and model portfolio and asset allocations neither are, nor should be construed as, investment advice, financial guidance, or an offer or solicitation or recommendation to buy, sell or hold any security, or to engage in any specific investment strategy by Homestead Advisers Corp. or Homestead Financial Services Corp.
The asset allocations for one or more predefined or model portfolios may change at any time and neither Homestead Advisers Corp. nor Homestead Financial Services Corp. will notify you when such changes are made. In addition, predefined and model mutual portfolios do not utilize any rebalancing methodologies and also will not be rebalanced when deposits or withdrawals are made. Therefore, if you choose to allocate your mutual fund holdings according to a predefined or model portfolio, your mutual fund holdings will not be updated as a result of any changes to the predefined or model portfolios nor according to any rebalancing strategy unless you elect to set up auto-rebalancing for your holdings. A rebalancing strategy seeks to minimize relative risk by aligning the portfolio to a target asset allocation as the portfolio’s asset allocation changes. Not rebalancing a portfolio may over time change its risk and return characteristics. Strategies that do not rebalance may not address prolonged changes in market conditions. You are responsible for monitoring your investments and their performance and for determining whether your investments should be rebalanced. You may set up auto-rebalancing for your portfolio at any time. This will rebalance your account to the current asset allocation model percentages of the applicable pre-defined or model portfolio according to the frequency you select. Further, we are under no obligation to update or change the asset allocation tool in any way or inform you of any changes to the tool or to its hypothetical asset allocation models.
A predefined or model portfolio can help you focus on a possible asset allocation strategy and create a plan of action. Homestead Advisers Corp., Homestead Financial Corp. and their affiliates do not provide tax advice, and you always should consult your own tax advisor regarding your personal circumstances before taking any action that might have tax consequences. You may also wish to consult a financial advisor for advice that is tailored to your investment needs. There is no guarantee that any particular asset allocation or mix of funds will meet your investment objectives, provide you with a given level of income or protect against a loss in a declining market. The predefined portfolios and model portfolios and asset allocations are methods used to help manage investment risk.
You understand and acknowledge that in using the asset allocation tool and/or predefined mutual fund portfolios, you are choosing to enter a series of mutual fund orders allocated across a group of mutual funds that you have selected.
Investment return and principal value of an investment will fluctuate. An investor’s shares, when redeemed, may be worth more or less than their original cost.
Customized Asset Allocation Model
You should consult with your financial advisor to establish your investment goals and the appropriate allocations of your investments. Please confirm you are comfortable choosing a customized approach for your portfolio instead of a predefined portfolio.
Asset Reallocation
When an Asset Reallocation is run, the system performs exchange transactions between the funds in the account, so that the resulting positions are in line with the Reallocation percentages listed in the Asset Allocation Model for the account. As a result, each exchange involves purchase and sell transactions. Please note that this may result in a taxable event for non-IRA accounts.
Rebalancing
Rebalancing can entail transaction costs and tax consequences that should be considered when determining a rebalancing strategy.