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These Products Can Help Clients Withstand Rate Hikes and Inflation

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What You Need to Know

  • Stock prices are more volatile.
  • Bond prices are more volatile, too.
  • In this environment, the author says, floating-rate products might be safer than bonds.

With continued rate hikes expected from the Federal Reserve, financial advisors and their clients are bracing for even more market turbulence.

With heightened volatility, it’s a good time to consider your options.

The war in Ukraine, remnants of COVID-19, ongoing supply issues and the surge in the price of oil add to the uncertainty, and market risks. Those factors are causing many indexes, like the S&P 500, to fluctuate frequently.

This volatility often leads to panic selling, and movement to safer assets.

But, with rates on the rise, it is especially challenging to place client assets in “safe” vehicles, such as some bond segments, when those segments may be dropping in price.

Yields are increasing, given that they move in the opposite direction as prices. But why lock in a rate for a client that becomes uncompetitive with the next rate increase? If the Fed fails to engineer a soft landing, and the rapid hikes lead to recession, this could lead to further turmoil.

Maintaining Portfolios Amid a Manic Market

Advisors are likely adjusting client portfolios to accommodate these changing conditions.

And although they need to be wary of volatility, maintaining asset accumulation pre-retirement is often a top priority with clients.

To get a handle on next steps, advisors should discuss risk tolerance and strategies to accommodate the volatility many portfolios are experiencing.

If clients are risk adverse, but looking for ways to maintain growth potential, floating-rate options offer the potential to rebalance out of fixed rate savings while maintaining a portfolio’s growth.

They can help clients bridge the gap between locking in a fixed rate or investing in longer-term Treasury bonds.

Floating-rate vehicles allow clients to preserve principal, and benefit as rates rise, without typical bond market risk.

Floating-rate annuities also allow for tax-deferred accumulation.

Facing an Unpredictable Market

Some clients may see these tools as confusing, but they should consider that many of today’s more innovative strategies are built around the fast-moving conditions of the market and are geared toward addressing their concerns and ambitions around both safety and accumulation potential.

As David Byrnes, a colleague at Security Benefit, notes, “Floating-rate options give financial professionals new ways of adjusting client portfolio strategies for a volatile and changing market. Maintaining a prudent strategy also takes frequent client check-ins and periodic re-balancing.”

And employing a wider array of strategies than in previous periods, including the use of floating-rate vehicles, will help advisors put together modern, resilient portfolios, to help clients realize their retirement aspirations.

Al Dal Porto (Photo: Security Benefit)Al Dal Porto is senior vice president, chief strategy officer, at




(Image: Andrii Vodolazhskyi/Shutterstock)


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