It may seem that one’s memory will only ever recall a bull market. The current bull market is the longest in history. It started in March 2009, and has been pushed forward by years of record-low interest rates. On February 19, 2020 the S&P 500 hit an all-time high, then fell 34% at the beginning of the COVID-19 pandemic. This led to a worry that the next bear market had begun, but after recovering so quickly, it was named the shortest bear in history.
When someone thinks of bear markets, they only think stocks; however, bear markets will often have broader impacts that can ripple across one’s entire financial portfolio. So, what is the savvy investor to do to protect themselves against a likely bear market?
A diversified portfolio incorporating fixed index annuities would be the best recommendation. A fixed index annuity (FIA) gives the holder tax-free growth, made explicitly for bear markets. Many provide income with premium protection from market volatility, which means there is upside potential, but no downside risk for the premium.
In a bear market, the account holder gains stability with a FIA, and have the upside opportunity when the market eventually turns. FIAs can be a planning vehicle for retirement savings, and are most valuable when there are the largest market downturns. They combine tax deferral with options for liquidity and annuity payouts. Annuities provide their holders with flexibility, allowing the buyer to start receiving payments in as little as one year, or deferring the payments until a pre-determined point in the future.
While one market downturn can be a disaster for many, it does not have to be. There will eventually be an end to the record-breaking bull market and, with it, the potential to wipe out much of the gains that investors have seen for over a decade. Dealing with this threat is especially vital for those that are nearing retirement. Work with a financial advisor on options in the annuity space that can allow you to continue to gain from the market, while preventing catastrophic losses when the inevitable market downturn comes.
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