Managing Market Risks in the Pre-Retirement Years Using Defined-Outcome Investments
How should a 60-year-old pre-retiree invest their nest egg if they hope to retire in five years? The recent historic bull market for stocks allowed many pre-retirees to approach or even exceed their retirement saving goals before the date they planned to stop working. Newly retired investors, or those near retirement, might seek an investment approach that offers greater control over their investment risk. A traditional investments approach uses a portfolio of stocks and bonds, but there are other approaches that could be better suited to an investor’s planning goals.
Through the use of financial options, an institution such as an insurance company or an asset manager can construct a range of investment outcomes tailored to the needs of a specific investor. An investor might want to preserve their recent stock market gains after a historic bull market, or they might want to reduce the possibility that they might need to either work longer or to cut back on their expected lifestyle in the face of investment losses. Structured investments allow an investor to trade large gains (which may have little impact on a retiree’s lifestyle) for the avoidance or reduction of losses. Traditional portfolios cannot provide the same protection as a structured financial product provides.