Retirement Puzzle Piece #1
Diversify and Protect Assets in Retirement
Learning Video: Diversify and Protect Assets in Retirement Part 2
Here are four reasons why so many Americans continue to choose stormy seas by investing in the stock market:
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Reason #1 for Risking Stormy Seas: People don’t know of another option
Most people have only heard one message all their adult life: Buy stocks. Buy Bonds. Buy mutual funds. Load your 401(k) with as much money as you can and make sure it’s all in the market. It’s no wonder the majority of the retirement-saving public is doing just that; it’s the only message they’ve ever heard.
Reason #2 for Risking Stormy Seas: The myth that nothing can compete with stock market returns
Throughout history, people have seen the stock market as the home of robust returns. There was a time not long ago when individuals could simply buy stock in good, well-run companies and hold that position their entire lives. Here’s the problem. Those days are done. We no longer live in a buy and hold environment. Change is too rapid; especially with the increasing use of technical trading.
Reason #3 for Risking Stormy Seas: Everyone else is doing it
We hear how Wall Street is supposedly making other people rich with various market investment strategies. And so, through the herd mentality, we think that if it worked for them it certainly should work for us. Unfortunately that’s no more true than watching someone win by placing a large bet on red at the roulette table and then rationalizing that since it worked for them, it will certainly work for us.
Reason #4 for Risking Stormy Seas: The American limited view.
The problem with our stock market is that the major indices have usually returned to new, all-time highs within a few years after each downturn, recession or depression. It’s been up, up and away forever. So the thinking quickly becomes, Sure, the stock market has some bumps and bruises along the way but it will always go up; always return to new highs. Well, just because that has been the story of America up to this point does not mean it will always be our story.
Real Asset Diversification
Let me reveal a huge mistake made by people in or near retirement:
Not knowing the difference between Risk-Based Investments and Alternatives with Guarantees!
That is, not understanding which investment choices offer potential gains but also contain risk of loss of your principle. These kinds of investments include stocks, mutual funds, variable annuities, commodities, real estate, hedge funds and even certain kinds of bonds.
And then, not understanding the investment choices that offer protection with guarantees including saving accounts, money market accounts, CDs, Treasuries, fixed annuities, and index annuities.
The Rule of 100
The Rule of 100 is a tool used by financial professionals to provide you with general guidelines for proper allocation of your retirement assets. The Rule takes into consideration your age and investment time horizon to better define your risk tolerance.
The calculation begins with the number 100. Subtracting your age from 100 provides an immediate snapshot of what percentage of your retirement assets should be in the market (at risk) and what percentage of your retirement assets should be in safe money (no-risk) alternatives.
The point here is: As you age, don’t overlook your risk exposure within your asset allocation. Risk allocation is a critical component to your overall financial plan and can have a dramatic impact on your retirement future.
A Guaranteed-Money Alternative to Wall Street Products
What if you were offered a guaranteed-money alternative that ran on autopilot and never put your principal at risk? What if it offered good growth opportunities; locked in the gains on a regular basis without triggering a tax event; never lost a locked-in gain; provided income that lasted as long as you lived, and was always 100% liquid with no management fees or sales loads? That’s a pretty appealing proposition.
But what if I then told you that this guaranteed-money alternative is a certain type of Annuity.
Introducing the Index Annuity
There is an innovative alternative in the world of annuities known as an Index Annuity. And, it’s a good option for someone nervous about having retirement savings being exposed to future volatility of the stock market.
An Index Annuity is an insurance contract. It is linked to and bases its performance on a major index (usually a stock index, such as the S&P 500).
If the stock index grows then the owner of the Index Annuity is entitled to share in part of that index growth in the form of interest. Interest that is credited to the annuity account value.
If the stock index declines in value, the Index Annuity account value is protected against any market losses.
One of the key features of an Index Annuity is that it enjoys the upside potential of the stock market but is not exposed to any downside risk. The value of an Index Annuity can increase due to index growth. But it will never decrease in value due to negative index movement.
And so, an Index Annuity offers guarantees on your principal, reasonable rates of return on your principle, diverse liquidity options, and various income options. An Index Annuity, therefore, is an excellent alternative that should be considered for every retirement portfolio.
Today’s Market for Index Annuities
In the market today, there are many different index annuity products to choose from when considering this type of investment. Index Annuities vary from contract to contract and insurance company to insurance company.
Each contract has its own unique design. That’s why I highly recommend that you speak with a knowledgeable financial professional who both owns and has experience working with indexed annuities. You should confer with someone who has the ability to accurately assess your financial situation and suitability before committing your money.
For more information on the subject of annuities, you can order one of my Special Reports “A Primer on Annuities.”