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RETIREMENT CRISIS: LACK OF DIVERSIFICATION


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New data clearly reveals that most Americans are at risk of an unstable retirement.* According to this new information, Americans need to explore new options to ensure a financially stable and dignified retirement. Otherwise, “bucket list” items may never be realized due to rising costs of health care and general costs of living which must be paid first.

Only 9% surveyed are purposefully diversifying their portfolio. And some of these investors believe that because they have invested in several mutual funds or have a managed account, their portfolios are properly diversified. To be sure, they have diversified their risk; that is, they have spread it around. But the overall risk remains. It’s just not concentrated in a few stocks or one mutual fund. In short, when the markets inevitably turn south, they won’t lose as much, but they will still lose a substantial amount of money. If you are one of those who believes that you have diversified enough, but have all of your assets in the stock market, you may be in for a rude awakening. For when the market decides to correct, or worse, enters a sustained bear market, your retirement goals and aspirations will take a severe hit.

Do not be fooled by your bonds or bond fund portfolios either, if you have them. They have protected you in the past from stock market declines because interest rates were going down. When interest rates go down, the value of bonds goes up. When interest rates rise, as they are now, the value of bonds goes down.

Thus, all the more reason to truly diversify your retirement nest egg. Indeed, a realistic diversification strategy can ensure a proper balance and provide the Sleep Well at Night mindset we would all prefer. That said, how do you properly diversify your portfolio?

The study referenced above also discovered that 22% of American are not familiar with even the more rudimentary ways to diversify. Outside of CD’s and money market or savings accounts, they have not explored any other investment strategies. That is why, at the end of 2016, approximately $7 trillion sat in bank accounts of one kind or another.**

A large percentage of these people are “risk averse”. They will accept what is offered to them by their banks or credit unions as long as it is safe. So, here is the dilemma. A large percentage of retirees are reluctant to invest in anything that has risk. Whereas another large percentage of retirees have all of their assets in the Wall Street Casino: with all its attendant risks.

Both of these groups should consider Fixed Indexed Annuities (FIA) to create a properly diversified investment portfolio. In so doing, these retirees will effectively address the diversity gap, for they will create a foundation of conservative growth that will ensure a steady income during retirement. Only Fixed Indexed Annuities provide growth opportunities, principal protection, and lifetime income guarantees. As a consequence, FIA’s are especially complementary to one’s existing portfolio, whether it is 100% in the markets, 100% in bank accounts or some combination thereof.

*Indexed Annuity Leadership Council (IALC) New Data: Extreme Lack of Diversification Could Add to Retirement Crisis – Indexed Annuity Insights 9-7-17 **See Bank Rates 12-31-16

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