By Admin 31 Aug, 2017
If you find finances confusing you’re not alone. Millions of Americans struggle with understanding retirement savings and investment vehicles, and for good reason. Many are complicated and seemingly designed to be as confusing as possible.

Some of the most daunting saving options are annuities. What makes them especially confusing is they’re often associated with insurance and sold by insurance carriers, but in essence, it’s an income stream. So what exactly is the deal with annuities?
By Nathan Fort 08 Aug, 2017
Economists and financial planners are likely still startling awake in the middle of the night, sheets drenched in sweat, with the nightmare of September 15, 2008 fading back into the recesses of their subconscious.

That was the day Lehman Brothers collapsed under the weight of the bad bets they made on subprime mortgage lenders, resulting in the largest bankruptcy in history.

You may have heard the term subprime mortgage tied to the financial crisis, but what exactly are subprime mortgages, and how did they torpedo the U.S. and ultimately the world economy?
By Nathan Fort 21 Jun, 2017
You likely hear a lot of conflicting advice about how to manage your retirement savings , especially when it comes to 401(k)s held through an employer. How often should you adjust allocations? Should you try to micromanage it with the limited options you’re given? Should you update it annually, biannually or monthly?

One commonality you’ll find among most sources is an emphasis on the role time plays in your 401(k) strategy. How much longer do you have until your retirement? The old adage that you continue reducing risk as you get closer to retirement is one of those entry-level 401(k) best practices for which there’s generally unanimous support.

This risk reduction can be safely examined through a lens of decades and years. If you start taking advantage of matching funds in your late teens or early 20s you will likely have 50 or more years of 401(k) investments to look forward to, so investing aggressively when you’re young gives you a chance to experience better growth on a smaller amount and take on more risk during a period of your life when you’re not exactly relying on your 401(k) for an immediate income stream. Even if a bear market were to hit a young investor, their 401(k) still has several decades in which to recover.

That being said, if there’s a bear market on the horizon, and at any given time you can hear opposing viewpoints on the likelihood of that, then you may want to consider adjusting your allocations to more defensive positions that are less exposed to the negative repercussions of market pullbacks. Whether or not you do this is dependent on your outlook on the market and whether you think the likelihood of a bear market is becoming an inevitability.

So How Do I Invest My 401(k) More Defensively?

When it comes to equities, or stocks, there’s always inherent risk. The market can fluctuate, scandals within a company can arise and recalls and lawsuits happen, just to name a few potential scenarios that can result in the rapid devaluation of a particular company’s stock. Bonds, on the other hand, are almost universally viewed as safer for a variety of reasons.

1. Bonds are, in essence, a guarantee that the lender will receive face value once the bond has matured.

2. Typical bonds pay a fixed interest which are guaranteed by the issuer and are part of the bond’s terms. This is different than the dividend payments some stock holders receive, which are entirely dependent on the issuing company’s business and management style.

3. From a long-term standpoint the bond market is typically more stable and less volatile than stock markets.

That being said, with little risk comes little reward. Although bonds can be traded and pay out a minimal interest to holders, they don’t have the growth or dividend potential equal to equities.

Some Other Potential Tips to Insulate Your 401(k)

You generally only have so many options when it comes to your 401(k)’s allocations. Keep in mind that small-cap companies have more growth potential, in most cases, than large-cap companies whose big growth days are behind them. But with large-cap companies generally comes more stability and less risk.

International stocks are another potential growth option given the global economic climate, but if there are big pullbacks in Asia, Europe and elsewhere it may be a good idea to divest out of international and move more toward domestic bonds.

If you have the option to invest in index funds you can also consider index funds that are designed to be bear proof. There are certain industries that maintain value and in some cases even grow during a bear market or recession. People, regardless of the economy (or in some cases maybe because of it), will continue drinking alcohol or smoking. They will likewise continue to need health care and other standard services such as electricity, waste disposal, internet and household goods such as toilet paper or toothpaste.
If you don’t want to get entirely out of equities but fear a bear market is inevitable, you may want to research various index funds that are designed to act as a hedge by including these types of recession-resistant industries.

Talk to the Local Austin Area Retirement Experts

If you want to learn more about growing your nest egg while protecting it from potential bear markets or pullbacks, Arbor Mutual Wealth Management can help. Our investment and retirement portfolio strategists excel at helping our customers truly understand their options, establish goals and map out a path to a comfortable retirement. Enjoy peace of mind knowing your money is headed in the right direction by calling (866) 332-1761 and scheduling a free retirement checkup!

Past performance is not indicative of future results. Asset allocation/diversification does not guarantee a profit or protect against a loss. There may be a potential tax implication with a rebalancing strategy, so please consult your tax advisor before implementing such a strategy.
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