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Retirement Planning > Retirement Investing

The move to safety

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From the October 2009 Issue of Senior Market Advisor Magazine

Some recent studies, including one by consulting giant McKinsey Co., provide evidence that the investing mindset of all generations is going through an important and lasting shift away from risk and high returns to safety and downside protection. The old saying that “everyone likes volatility, as long as it’s upside volatility,” is holding true in the current economic environment.

We all know the drill: Advisors assume those closest to retirement age are more interested in “safe” investments like bonds or annuities. The longer a client has until he reaches the traditional retirement age of 65, the more likely the asset allocation is heavier in stocks. The thinking is that younger investors will have time to rebound from any short-term downward move of the market. But today, investors of all ages are running scared.

Security versus risk
Sure, older boomers, those nearing traditional retirement age, are still telling us in surveys that it is more important to protect them from losing any more money than it is for them to risk it on a higher performing asset. The McKinsey study confirmed that mindset as well. But seven out of 10 younger boomers, ages 45-54, said in the McKinsey survey that they, too, want downside protection. In fact, more of them said they would be interested in products offering guaranteed income for retirement than did the older boomers.

Thanks to the current global recession, even Generation X clients, ages 27 to 44 this year, are leery of having too much money in the market. They are afraid that future meltdowns will wipe them out too. Many recognize the possibility of this being a permanent change in financial attitudes and behaviors.

The new risk profile

Some analysts believe the downturn has left a mark that could change the industry, and they predict a future of risk-averse investors, lower margins and ultimately fewer companies. At the very least, the risk profile will not change any time soon, if ever.

For advisors focused on older investors, this means you should not make sweeping assumptions that all boomers are the same or that only older boomers want downside protection. Your clients of all ages are keenly interested in safer investments, such as annuities that can be put inside an existing 401(k) or IRA. Customize your asset allocation models accordingly.

And if you’re not currently selling low-risk products, perhaps now is a very good time to add them to the mix.


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