There is no doubt that the COVID-19 virus has had quite an impact on the world. Physically, psychologically and financially there will be fallout for years to come from this pandemic.
This article is not to argue points as to whether this or that party handled things optimally or whether you mask or don’t mask or even whether you should or shouldn’t get the vaccine. No, in these areas, I tend to hold to a position of liberty for the individual (freedom of thought and action) and charity (love) for those with whom we may disagree. In other words, no matter your position, just don’t be a jerk about it! Be thoughtful, caring, considerate and most of all, be flexible and teachable.
Specifically to the article’s title, in the area of finance and the economy, this virus has really impacted women particularly hard. According to a May through June 2020 Nationwide study of over 2,500 men and women, women seem to shoulder much of the worry when it comes to the economy and the growing concerns of preparedness and their ability to retire. This has been taken to even higher levels due to the pandemic. There are five areas that were found in the study that showcased the most common concerns.
According to the research, the first concern was that of reduced retirement income longevity with 72% of respondents expressing concern in this area. At our firm, we have found that this is a direct result of losses in investment asset value which is directly tied to investment risk management. There is typically a lack of understanding surrounding the risk management philosophy of their investments and how they are affected when markets correct to any degree but especially that of last year. Many women (and men for that matter) don’t know that there is more than one way to manage investment portfolio risk (that is, static versus dynamic). Also, understanding how much loss would be needed to knock their long-term income plan off the rails is not only freeing in the sense of just knowing the unknown (for many) but also helps build the parameters needed in the area of investment risk management.
The second was concern about a possible recession (82%) or an on-going bear market (74%). Since this market recovery has been the fastest on record, this fear may have subsided a bit since last year’s survey. However, one should not be complacent, the economy as a whole is not out of the woods yet. Also, bear markets typically last 1-2 years. 2020’s market recovery is an anomaly in many respects. There will be more bear market corrections, it’s inevitable and thus a typical bear market time-frame is not outside the realm of expectation. The question is how are you addressing that risk.
The third concern women expressed was the level of their market losses and lack of preservation for their investment assets (36%). This ties back to my comments in the first concern above but also highlights that many believe they have to have all their assets in the market to have a successful investment strategy. This may or may not be the case. Our philosophy is don’t have any more money in the market than what’s needed to meet a long-term retirement plan income goal. There are ways to off-lay certain risks to preserve your income in retirement but they should be coordinated with a sound financial plan.
The fourth concern involved not having enough guaranteed sources of income (as just discussed). Fifty-nine percent of women stated they’d feel more secure knowing a portion of their portfolio was used in a more predictable type asset like an annuity. I have nothing against annuities, we use them here in our office. However, they are complex products with wide-ranging applications. Using the wrong product in the wrong way with the wrong amount of money can devastate a retirement plan. We know, we have to fix many of these type of problem cases coming into our office. A product solution of any kind should be in the best interest of the client and always tied back to a sound financial plan. Anything different and you’re just being sold.
The fifth and final area of concern was being properly diversified. Diversification is important to any long-term investment strategy. However, not necessarily in the way many are used to. Doesn’t it make sense that you would want to be diversified into areas that actually show the potential of making money? Of course! Also, diversifying retirement income sources falls into this camp as well.
Women are aware of the challenges they face in a macro sense, they tend to be ahead of us gents in that regard. However, many may be unaware or behind in addressing the retirement plan gaps they may have and how those may have been exacerbated by the COVID crisis. This is where we have been able to help many of our female clients. Planning that is in their best interest to help meet their unique goals and challenges.
Fixed Annuities are long-term insurance contacts and there is a surrender charge imposed generally during the first 5 to 7 years that you own the annuity contract. Withdrawals prior to age 59-1/2 may result in a 10% IRS tax penalty, in addition to any ordinary income tax. Any guarantees of the annuity are backed by the financial strength of the underlying insurance company.
Diversification does not guarantee a profit or protect against a loss in a declining market. It is a method used to help manage investment risk.