Physical Address
304 North Cardinal St.
Dorchester Center, MA 02124
Physical Address
304 North Cardinal St.
Dorchester Center, MA 02124
Last year gave yet another period of ongoing market volatility, with significant market swings reminiscent of the roller coaster rides Wall Street gave us in previous years.
While the narrative throughout most of the year centered on elevated uncertainty and fears of an impending recession, American investors ended 2019 feeling more confident about their finances than they have in a long time.
According to the Allianz Quarterly Market Perceptions Study from the fourth quarter of 2019, worries about an impending market crash or recession are low levels. What’s more, Allianz found that just 19% of people were worried about market uncertainty in the last year.
All in all, this means investors are feeling pretty good about their financial situation in 2019, and aren’t worried about a recession or major market downturn heading into 2020. What a great way to end a decade!
But that doesn’t mean people are rushing to get off the sidelines and put more money into the stock market. The number of people who say now is a good time to invest in the market continues to decrease (currently at just 34%). What’s more, only 36% of Americans are optimistic about market conditions today and say they will probably make money in the near future.
So why the conflicting messages? Perhaps investors were burned in 2018 as they watched their investments take hit after hit. But at the same time, perhaps people are all becoming a bit immune to the ongoing drumbeat of warnings of increased volatility and looming recession. So what should you keep in mind for the year ahead, particularly if you are nearing retirement?
Optimistic investors shouldn’t throw caution to the wind completely. Market risks should still be top of mind throughout 2020, because the factors that impacted market volatility in 2019, like ongoing trade talks between the U.S. and China, will likely continue for the foreseeable future.
This is particularly true for investors who are closing in on retirement and need to face the very real reality of taking income in a down market. Sequence of returns risk, if not managed correctly, can derail a retirement plan.
Withdrawing funds from investments for retirement income in a negative market environment means selling at a loss, and getting negative returns with no upside potential. This is particularly hazardous for people who are just starting off their retirement, as it can reduce the amount of income that is available for the rest of a retirement.
So how can investors nearing retirement – even the most optimistic ones – prepare to mitigate these risks?
First, look for protection opportunities. The good news is that 60% of people in the Quarterly Market Perceptions Study said it is important to have some retirement savings in a financial product that protects it from market loss. But the bad news is that number is actually lower than it has been in more than a year.
The study also asked respondents about the most important action to help make sure they have a secure retirement, and about a third (31%) said putting some money into a financial product that offers a balance of potential growth (10%) and some level of protection (they won’t lose any money if the market goes down more than 10%) was most important.
The same amount (31%) said putting some money into a financial product that provides a guaranteed stream of income in retirement was important. However, just 17% said that putting some money into a financial product with modest growth (2% to 3%) and no potential loss was most important. This seems to indicate that more people (perhaps the optimists?) still want to be able to reap the gains from the market highs – especially when they see things like the Dow Jones Industrial Average continuing to break record highs.
While no one can predict whether the coming year will bring a market correction or continued market highs, the best thing investors can do is to prepare and look for opportunities to mitigate some of the risks that are likely to occur.
Heading into 2020 optimistic is a great thing for investors, but smarter investors should work with a financial professional to assess their risk tolerance level and seek out protection opportunities to help make sure they are prepared well beyond the next year. Particularly for those with retirement on the horizon.
Disclosures: The views expressed above reflect the views of Allianz Life as of February 2020. These views may change as market or other conditions change. This report is not intended and should not be used to provide financial advice and does not address or account for an individual’s circumstances. Past performance does not guarantee future results, and no forecast should be considered a guarantee.