It’s been a volatile few weeks in the financial markets. In mid-February, we were still enjoying a relatively healthy economy. And then the coronavirus arrived. Between Friday, February 21 and Monday, March 16, the Dow Jones Industrial Average has dropped by 30.37%.1
The rapid decline has left many investors with two questions:
- How much further will markets drop?
- What can I do to protect my assets?
There’s no easy answer to the first question. If history is any guide, eventually the decline will stop, and the economy will recover. The second question is even more difficult to answer. There are certainly protection options available, but not all options are right for all investors. Your strategy should be based on your unique needs, goals, and tolerance for risk. Below are a few options you have available:
Shifting to a more conservative strategy.
You could transition to a more conservative strategy. Many people become more risk-averse as they approach retirement. If you haven’t reviewed your allocation in years, this may be the right time to do so.
Of course, a more conservative allocation could limit your participation in a recovery when it happens. Work with a financial professional to find an allocation strategy that limits your exposure to further losses, but still gives you an opportunity to participate in future upside.
Using market risk-protection vehicles.
Another option is to take advantage of market risk-protection vehicles like annuities. There is a wide range of different types of annuities that can limit your exposure to market risk and protect your future income. For example, some annuities guarantee your principal against downside market loss, but also give you the ability to earn interest. That could be a way to limit further losses but still maintain growth potential.
Life insurance is another possibility. Yes, you can use life insurance to limit your exposure to risk. Most permanent life insurance policies have a cash value account. If you have a whole life or universal life policy, this cash value account isn’t exposed to the financial markets. There is no risk of loss due to market decline. However, you may earn dividends or interest so you can grow your cash value on a tax-deferred basis.
Protect your income.
Are you planning on using your assets to generate income in retirement? If so, every day of losses may mean a reduction in future income. You can guarantee your future income by using financial vehicles like annuities. Many offer optional benefits that pay a guaranteed income stream in the future, no matter how long you live or how the markets perform. A financial professional can help you determine if an income guarantee is right for you.
Ready to protect your nest egg? Let’s talk about it. Contact us today at Caprock Financial Group. We can help you analyze your needs and implement a strategy. Let’s connect soon and start the conversation.
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