Page 10 - Investment Advisor - December 2023

Beginnings

reTIremeNT/ANNuITIeS PlANNING

By John Manganaro

one Way to Protect near-retirees From

Market shocks: Wade Pfau

This approach may help near-retirees with significant bond allocations stay
on course when a rapid rise in interest rates hits.

ear-retirees who are depending reduce the value of existing bonds, but work, there is an emerging alternative
on bond funds to maintain the investors who fear equity market vola- approach for advisors and investors to
Nvalue of their assets without tility often feel they have little choice consider, and it involves using struc-
taking excess equity market risk are but to stick with their bond-heavy port- tured investment products as a comple-
still vulnerable to having their financial folio allocations. This is because the ment to the standard 60/40 portfolio.
plans steered off course by rapidly rising traditional approach of investing only in Recent innovations in the structured
interest rates. As noted in a new report stocks and bonds creates a big limitation. annuity market, in particular, offer
published by the well-known retirement “The only mechanism [such] an inves- an alternative distribution of returns
researcher Wade Pfau in collaboration tor can use to adjust the distribution of through guarantees that offer both the
with Equitable, this concept shifted potential returns is the allocation of their opportunity for growth and protection
from abstraction to reality in 2022. The savings between the asset classes,” Pfau against loss, Pfau says.
year brought stock and bond market notes. In this binary framework, moving As Pfau explains, structured annui-
losses in the double digits, and the pain away from bonds means taking more risk ties use financial derivatives to create a
on the bond side was mainly driven by in the equity market, which itself may be structured return that changes the shape
rising interest rates. a bigger worry for some investors. of the portfolio’s projected return dis- Adobe Stock
As Pfau explains, rapidly rising rates Fortunately, according to Pfau’s latest tribution and the relationship between

8 Investment AdvIsor December 2023 | ThinkAdvisor.com