Life Notes Financial Health article by Brent J. Welch, CFP®, ChFC, CRPS®, CLU, AIF®
Fear is an emotion that can overwhelm you. When it comes to your money, fear can steal your joy and trap you into hopelessness. You can feed that fear by listening to news stories that stir up fear or you can build up faith by realizing that you are ready for the next major market down turn. For example, you might be all worried after attending a seminar put on by a financial advisor who got you all worked up about the future of the markets and how messed up your investments supposedly are. You may think the markets are too high to sustain more growth. You just want to know if you are on track and how to stay on track.
You might be better prepared by keeping some of your bond-type investments in a fixed indexed annuity (FIA). FIAs participate in some of the upside potential of the market without the downside risk. FIAs are not very liquid, so you may need liquidity in your other investments. FIAs are like investments with seat belts.
Another type of insured investment is called a variable annuity. Variable annuities may have a guaranteed income base available that provides guaranteed income for your or your and your spouse’s life. These accounts are generally less liquid and may carry expenses around 2.5% without the income rider and nearly 4% with the income riders. The benefits you may experience with a variable annuity include a guaranteed income base and guaranteed income for life for you and (if you are married) your spouse. Variable annuities in our opinion act like an investment with airbags.
Like expensive airbags in your car, you hope to never use them. But in the event of a big crash, they may save your life. Even if the market drops 50%, your variable annuity with a guaranteed income rider may provide you with lifetime guaranteed income that carries on as long as you do. If you are married, your guaranteed income can last for the surviving spouse’s lifetime. Once you understand the fees and features about variable annuities, you may develop an appreciation for the value that may be added to your investments.
Welshire’s Advance and Protect strategy is another investment strategy that may give you a similar effect of investment seatbelts. The objective of this strategy is to help keep your money in what we believe to be the right place at the right time. When economic storms are on the horizon, the investment committee at Welshire has the ability to move you to a more conservative allocation. Typically, the five models rotate one model at a time. With each rotation to a more conservative allocation, your stock exposure drops by 20%. For example, if you were in the moderate Welshire 60 strategy, you would first rotate to the moderate conservative Welshire 40 model. Your stock exposure would drop from 60% to 40%. The Advance and Protect strategy may be applied to a brokerage account such as TD Ameritrade Institutional or to your variable annuity. You may help prepare yourself for the next big market downfall by using some of these investment strategies, which may include “investment seat belts and investment airbags”. It’s not that you can’t lose any money; however, by diversifying over different strategies, you may help to minimize losses during market downturns. Being prepared may help you reduce your fears and increase your faith.
All investment strategies have the potential for profit or loss. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment or strategy will be suitable or profitable for a client’s portfolio. There are no assurances that a portfolio will match or outperform any particular benchmark. Asset allocation and diversification do not assure or guarantee better performance and cannot eliminate the risk of investment losses.
Of course, past performance is no guarantee of future success. All investments have risk including the loss of principal. No strategy works perfectly every time. That’s why we would like to guide you through the Eight Investment Strategies for Life and help you decide which options may be best for you. If you would like to meet with a Welshire Wealth Advisor, please call our office today at (608) 783-0003. Our aim is to help you keep your fees as low as possible and help position your money for the next big market crash.