Helping You Protect Your Money. Helping You Protect Your Future.
Every crisis is an opportunity. The massive turmoil on financial markets so far this year is no exception. Here are three things that every middle-class American can do with their 401(k), IRA or other retirement plans, right now, to take advantage of what’s going on.
1. Move Some of Your Money Into a Fixed Index Annuity
Retirement accounts, such as 401k’s, IRA’s, 403B’s, and Thrift Savings Plans (TSP) are all taking a hit this year due to market volatility. As of mid-June 2022, major stock indexes like the S&P 500 have fallen over 20%, while funds like international developed markets and U.S. small-caps are down 19%.
When this does happen, and individuals start looking for safer strategies in their portfolio, there is a trend of consumers moving money into bonds. We have, of course, seen this occurring steadily during Q1 and Q2 2022. Unfortunately, due to changes in the Federal Reserve that are also occurring this year to offset inflation, the US Bond aggregate has fallen 13% in price and very long-term Treasury bonds are down as much as 33%. This means, bonds are not a safer approach and can actually open you up to a more immediate risk in some cases.
There is one “safe” approach for consumers who want to continue to grow their money when the US stock market is doing well but who do not want to keep losing during a Bear Market, like we are experiencing today. That approach is called a Fixed Index Annuity.
Not only can you roll over your employer sponsored retirement account and/or your individual retirement account into a Fixed Index Annuity, but you can often receive a signing bonus up front when you do so. Here’s what that would look like:
2. Rebalance Your “At Risk” Investments
Moving some of your portfolio into a safe money strategy like a Fixed Index Annuity would be step one to achieving True Diversification in your portfolio, but the next question would be- what to do with the funds that you choose to continue to keep in an at-risk financial environment.
There’s some good news hidden in a broad-based selloff: pretty much everything has gone down. So, if you came into the 2022 calendar year owning, say, too much in large company U.S. stocks, and too little in smaller company stocks, foreign stocks, real-estate investment trusts, etc. this could be a good opportunity for a do-over. Rebalancing assets now could be conducted free of charge or at least reasonably cheap, since pretty much everything (except commodities and energy stocks) is down.
It’s not perfect of course, because things have fallen different amounts and will likely continue to lose value for a while longer. But, in today’s economy, transitioning to a more conservative approach and taking advantage of lower costs along the way can often make good sense.
3. Create Legacy Funds for Your Children or Grandchildren
One simple way to take advantage of this market meltdown is to use the timing to set up that legacy fund that you’ve been wanting to establish for your children or grandchildren.
Opening a new savings or investment account for minor children in 2022 and depositing as little as $5,000 or even $1,000 on their behalf into some low-cost index funds could be a good way to leave a little bit of money behind for your loved ones that is pretty well positioned for positive growth from here on out. The long-term returns from the stock market averaged about a 5.5% compounding interest over the last 20 years, as have accounts like Fixed Index Annuities which tend to average somewhere between 3-6% compounded interest over time. Based on those numbers, a $5,000 gift today could be worth as much as $14,588 in 20 years’ time.
Again, every crisis is an opportunity to reevaluate your strategies and take action towards positive change. At Summerlin Benefits Consulting, we help clients follow a simple 3-tiered approach in deciding their course of action during times like this. Always ask yourself if the strategy you are taking is:
(1) Good for Me Now. (2) Good For Me Later. (3) Good For My Family When I’m Gone.
Yes. In 2022 with our turbulent market, it is a very good year to restructure in order to try to take advantage of the circumstances. But more importantly, restructure now to protect the assets you have and help you achieve all three of these objectives going forward.