COVID-19, inflation and the Ukrainian war have all contributed to a volatile stock market in recent weeks. Volatility will continue as usual while one sector is experiencing profitability, another is declining, resulting in declining stock market valuations. For investors, the up and down performance creates market risk but is part of the underlying economic fundamentals of our U.S. stock market system:
- The stock market looks ahead years, not months, to determine future valuations.
- Sectors are valued separately; the market values companies from many sectors to make up its total valuation.
- Market valuations do not reflect GDP or employment in the real economy.
What Can I Do?
All market sectors respond similarly, as geographic risk, production, economics, and lifestyles are impacted worldwide. Volatile stock market conditions may be optimal for investors and their financial professionals to create strategies to help offset market risk in retirement. As an investor, what can you do during periods of volatility?
- Continue to focus on your long-term goals and not react to daily or weekly market movements.
- Monitor the standard deviations of returns week over week to determine overall volatility. Do not be too optimistic or too pessimistic- half the time the market is up, and half the time, it is down.
- Stick to the allocation inside your portfolio.
- Monitor interest rates since increasing rates generally signal economic recovery is approaching.
- Continue to invest consistently and let the markets do their thing.
- Consider adding an annuity as another asset class in your portfolio to help offset market risk.
How do annuities help offset market risk?
Fixed-indexed annuities help solve the challenge of outliving your money-no matter how volatile the stock market. Investors use fixed-indexed annuities as a source of retirement income to draw from when their other retirement assets are at a low valuation due to market risk. Fixed-indexed annuities are an essential component of retirement planning due to these features:
- Fixed Indexed annuities provide growth potential through the features of their sub-accounts, which help determine the performance (net of expenses) and the amount of money to be paid out. This unique feature provides a level of growth, and payments can increase over time.
- Fixed-Indexed annuities offer a tax advantage by allowing the owner to save more through tax deferral by off-setting their income. They have higher contribution rate limits than traditional pre-tax retirement savings accounts.
- Fixed-Indexed annuities can smooth out a portfolio’s return pattern over time, regardless of market performance.
- A Fixed-Indexed annuity is a contract issued and guaranteed by an insurance company.
- Fixed-Indexed annuities are tax-deferred accumulation vehicles. Their growth benchmarks to a stock market index rather than an interest rate.
Work with a financial professional
Remember that future stock market performance is not predictable and that the time to liquidate is not during a volatile stock market. Your financial professional can help you determine a strategy that includes fixed-indexed annuities to offset today’s volatile stock market performance.
The sources used to prepare this material are believed to be true, accurate and reliable, but are not guaranteed. This information is provided as general information and is not intended to be specific financial or tax guidance. When you access a link you are leaving our website and assume total responsibility for your use of the website you are linking to. We make no representation as to the completeness or accuracy of information provided at this website. Nor is the company liable for any direct or indirect technical or system issues or any consequences arising out of your access to or your use of third-party technologies, websites, information and programs made available through this website. An annuity is intended to be a long-term, tax-deferred retirement vehicle. Earnings are taxable as ordinary income when distributed, and if withdrawn before age 59½, may be subject to a 10% federal tax penalty. If the annuity will fund an IRA or other tax qualified plan, the tax deferral feature offers no additional value. Qualified distributions from a Roth IRA are generally excluded from gross income, but taxes and penalties may apply to non-qualified distributions. Consult a tax advisor for specific information.
Our family financial services firm, August H. Velten & Associates, has been in business for 12-years in Melbourne, FL. August Velten (CLU) is a 40-year veteran of the Financial Services industry. August is a former instructor for the Life Underwriter Training Council and once occupied the legislative seat for the Maine Association of Life Insurers. In Brevard County, you may have seen him on local access TV or read one of his articles in a local area magazine. Jessica Waterhouse, August’s daughter, left her own practice to join the firm in 2019. Jessica is a Florida licensed insurance producer, securities licensed (Series 65), a long term care specialist (CLTC) and holds certification as a National Social Security Advisor. Both August & Jessica are instructors for financial literacy workshops in both Brevard and Indian River County offering education in Social Security and Financial Planning. Contact the office today to schedule an introductory meeting or review of your current financial plan.
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