Displaying items by tag: risk

Buffer ETFs have surged in popularity among financial advisors aiming to placate nervous clients while maintaining their investment positions. Their widespread adoption has led to major expansion, from less than $200 million to $36.7 billion since 2018, according to Morningstar. 

Operating on the defined outcome strategy, buffer ETFs use equity options to mirror benchmark performance while offering downside protection in exchange for an upside cap within specific 12-month life cycles, available monthly or quarterly. 

Jeff Schwartz, president at Markov Processes International, underscores the importance of comprehending the intricacies of these vehicles, given the multitude of variables involved, and that the intricacies around the buffer and cap structure are pivotal. Advisors must carefully consider market conditions when purchasing buffer ETFs at any point during their lifecycle to prevent diluting the intended benefits. 

Finsum: Timing conditions are still important when it comes to buffer ETFs despite their built in protections.

In 2023, the US annuity market flourished amid strong economic conditions and heightened investment security concerns, reaching an unprecedented milestone with sales hitting a record $385 billion, as reported by Limra's US Individual Annuity Sales Survey. 

Helping drive home this surge were fixed indexed annuities also witnessed robust growth, reaching $95.6 billion in sales, while traditional variable annuities faced a decline, recording their lowest sales figures in both quarterly and annual comparisons.

This annuity renaissance, a 23 percent increase from 2022, was also aided by the fixed annuity segment, which soared by 36 percent to $286.2 billion, marking a second consecutive year of record-breaking performance. Additionaly, traditional variable annuities were outstripped by registered index linked annuities for the first time ever.

Finsum: Index annuities are having an edge in the current macro environment with volatility looming but investors wanting higher return.

With signs that inflation is starting to tick higher and renewed concerns about the stability of banks, many investors are looking to shield their portfolio from a rise in volatility. As 2022 demonstrated, rising inflation creates conditions that are unfavorable for stocks and bonds. 

One way that investors can protect their portfolios is to increase their allocation to fixed index annuities. They can help investors reduce risk while still allowing for accumulation. A fixed index annuity (FIA) functions similarly to a traditional annuity as it guarantees some payment while allowing for deferral of taxes. However, the key difference is that it also tracks a specific index to allow for appreciation of the principal as well. 

Unlike fixed income or equities, there is much less downside risk and sensitivity to interest rates. Essentially, the FIA will not see any loss of principal in the event that the index suffers losses. However if the index has positive returns, the FIA will capture some portion of the upside. 

Thus, FIAs can help reduce portfolio risk and shield investors from disastrous scenarios especially if they are in or near retirement. At the same time, it ensures that the portfolio is also protected against inflation, reducing the risk that a retiree will outlive their savings.

Finsum: Risks to the outlook have been steadily rising in 2024 as inflationary pressures are once again building, and there are renewed concerns about the health of the banking system. Here’s why fixed indexed annuities are an effective way that investors can diversify and de-risk their portfolios.

Direct indexing, increasingly popular among investors, particularly benefits those with concentrated company stock positions by allowing them to replicate index performance while retaining control over individual securities. 

This strategy, once reserved for the ultra-wealthy, has become accessible and affordable for investors at all levels due to recent technological advancements. Through customization based on preferences and goals, direct indexing offers diversification and risk management, crucial for those with concentrated stock holdings. 

Tax efficiency through strategies like tax-loss harvesting further enhances its appeal, maximizing future value potential for investors. With its ability to reduce risk and enhance performance, direct indexing presents a compelling option for investors looking to protect and grow their assets.

Finsum: It used to be infeasible to use direct indexing, but technology improvements are giving smaller investors the edges in tax and diversification that was reserved for the ultra wealthy.

Having a steady source of income during retirement is a universal goal. According to a new research paper from Wharton, investors should consider a deferred income annuity product in their retirement accounts as this has shown to improve welfare for all groups when accounting for sex and education level.

Optimally, Americans would wait until they turn 70 before starting to receive Social Security payments, as it would lead to the biggest monthly check. Yet, most don’t for various reasons including a need for additional income, not wanting to work till this advanced age, and failure to plan properly. 

One potential solution is a deferred income annuity which would allow prospective retirees to bridge the gap and create extra income in their 60s. This would increase the chances that they would be able to not claim benefits till age 70 and maximize income from Social Security. 

These findings are especially relevant following the passage of the SECURE 2.0 Act in December 2022 which was created so employers would offer some sort of lifetime income payment option in 401(k) plans. The paper adds that options should also include a variable deferred income annuity with equity exposure in addition to fixed annuities. 

Finsum: Ideally, retirees would be able to put off receiving Social Security payments until they are 70. One way to increase the odds of this are to include annuities in retirement plans to create income during interim years.