Seeking Certainty in Uncertain Times
In today’s unprecedented economy from the Coronavirus scare, more and more investors are seeking ways to make sure their financial portfolio is stabilized. In past articles, we have stressed the importance of risk management regarding your retirement and income planning. Now is no different.
Knowing your risk tolerance for your portfolio as well as having plans in place for downside protection can be of paramount importance in times like this. There are several ways to plan for this that we will discuss below.
Actively managed portfolios with downside protections. If you’re a traditional “buy and hold” investor for the long term, it can take years to recover from a severe downturn. Like we saw in the financial crisis of 2008-2009, stock markets were down over 50%, which then took many investors 6-8 years to get back to even, assuming they held their same funds. When stock prices lose 50% of their value, you have to earn 67% to get back to even. If you are using an actively managed portfolio that uses cash or treasuries as a hedge, they may be able to dollar cost average out of stocks before a steeper selloff occurs. We utilize technologies that have specific triggered sell points in a pre-planned algorithm to get out of the market as it is going down. One of the main benefits is not just helping to protect against catastrophic losses, it is then having liquidity to buy back in at discounted prices, therefore hopefully shortening that breakeven timeframe. It also may help knowing there is a tested plan in place.
Fixed Indexed Insurance Products. Many consumers are learning more and more about the innovations in the insurance marketplace and diversifying their portfolios. One main reason for this is bond and CD prices. According to www.thebalance.com, historically, many have yielded 4-6% returns, but in the last decade, and foreseeable future, these rates are much, much lower. So, fixed indexed annuities and life insurance have been a great alternative to try to generate those expected returns with less risk.
Fixed Indexed Annuities (FIAs) can be very complicated products but working with an independent advisor to help navigate that marketplace can be very important as they are long term contract agreements. The main things we look for are 1) little to no fees, 2) flexible withdrawal options, 3) uncapped growth potential. The primary advantage is principal protection, giving you less risk than bond funds for a small portion of your portfolio.
Many people have found utilizing life insurance in the same manner could yield even better returns given some tax advantages allowed for income from insurance policies. If it is a long-term time horizon for the funds being used, it may be of consideration. These can help protect you from a life insurance standpoint, but also importantly, give you access to that death benefit should you become ill, or taking a supplemental tax-free retirement income. Insurance you don’t have to die to use.
These three ideas, I like to compare to bridge guard rails. If you have no guard rails on your investment portfolio, you may be at the mercy of the markets, which may be uncomfortable in times like this. These are a way to take risks maybe more efficiently by having a plan in place. You wouldn’t drive across a very large bridge doing 65mph without guard rails, why do it with your retirement?
As always, if you’d like a complimentary second opinion for your planning, please reach out to Douglas Marion with Advanced Wealth Strategies. Feel free to call or text (704) 765-3653 or email Douglas@PlanWithAWS.com. Their local office is conveniently located at 19520 W. Catawba Ave, Suite 313. Their firm will put your best interests as priority.
Investment Advisory Services offered through AlphaStar Capital Management, LLC., a SEC Registered Investment Adviser. AlphaStar Capital Management, LLC and Advanced Wealth Strategies, Inc. are independent entities. Insurance products and services are offered through Advanced Wealth Strategies by individually licensed and appointed agents in various jurisdictions. Advanced Wealth Strategies does not offer legal or tax advice. Fixed insurance and annuity product guarantees are subject to the claims paying ability of the issuing company and are not offered or guaranteed by Alphastar. Investing involves risk, including the potential loss of principal. Past performance is not a guarantee or predictor of future results of any particular investment, benchmark, or indices, nor a guarantee of achieving overall financial objectives. All investment strategies have the potential for profit or loss.