As a financial planner, you know it’s in your client’s best interest to have a diversified retirement portfolio that best suits his or her needs. For a financial planner working with high net worth clients, there are many options for where to hold these assets so they can remain free from risk, continue to accumulate more wealth or both.
While these clients are typically more financially savvy than other individuals, they might not be aware of all their investment options and the intrinsic risks and benefits that go along with these various choices. However, by providing data on where and how people are investing their money, financial planners can potentially sell more life insurance and annuities to their clients, while simultaneously minimizing exposure to risks.
Where people are putting their assets
Securing a client’s wealth over the long-term is the most important goal for every financial planner and knowing what the investment breakdown is for individuals is important in being able to direct them from one instrument to the next.
A recent Bankrate national survey asked participants what was the best way to invest their money, and the results revealed:
- Real estate was the most popular answer at 25 percent
- Cash investments, such as savings and CDs, came in second at 23 percent
- Tied for third was gold or precious metals and the stock market, both at 16 percent
- Bonds came in at 5 percent
- “None of these” at 6 percent
- Nine percent of respondents said they “Don’t know/refused to answer”
“Real estate was the most popular choice for investors.”
While this spread might seem fairly diverse, there are some glaring holes and questionable responses. Noticeably absent from the list is any form of life insurance or annuities. In fact, the majority of these options have a high level of risk associated with them, which could potentially wreak havoc on a secure retirement portfolio.
Exposure to risks
Although exposure to risks is an unavoidable facet of any investment designed to accumulate wealth, for individuals heading into their retirement, too much risk can threaten the long-term viability of their savings. While real estate may provide a solid return on its initial investment and payout nice dividends over time, this also carries substantial risks that may put a sizable dent in a person’s retirement. As the Great Recession tragically illustrated, a real estate bubble can pop at any time. If and when this happens, those individuals who chose to use this option as their primary source of retirement funding may find their assets depreciated.
The same can be said of volatility in the stock market, where investor sentiment can change on a whim and suddenly cause a slump in equity prices. Further, as noted by Brad Barber, a finance professor at the University of California, Davis, despite the popularity of gold for portfolios, this precious metal has historically performed poorly for creating wealth for investors.
“Gold probably has no real place in a traditional investment portfolio,” Barber told Bankrate. “It’s really not an investment, it’s a commodity. So I think this is more folklore than it is good economics.”
With so many risks threatening to depress a retirement portfolio, financial planners must have alternative options at the ready for their clients.
Better retirement options
Speaking with LifeHealthPro, Jafor Iqbal, assistant vice president of the LIMRA Secure Retirement Institute, noted that annuities have been gaining in popularity as a viable instrument for maintaining wealth long after a client decides to retire. These financial products provide a guaranteed lifetime income for both the client and his or her spouse, while also alleviate market risk and volatility.
“Annuities provide a guaranteed lifetime income and minimize risk exposure.”
For high net worth individuals, annuities are a great way to protect against risks that can threaten their savings. According to the source, nearly 26 percent of mass-affluent individuals who have more than $250,000 in investable assets own an annuity. In comparison, only 19 percent of people with investable assets between $100,000 and $249,999 own an annuity, while only 4 percent of those with assets less than $100,000 have annuities.
Research from LIMRA Secure Retirement Center revealed that the No. 1 piece of advice clients want from their financial planner was how to minimize their chances of running out of money during retirement. With solid data on your side and access to a wide range of life insurance products to choose from, financial planners can point to these statistics to illustrates to their high net worth clients why annuities and life insurance make sense for a diverse retirement portfolio.
By including annuities as one component of the formal retirement income planning process, financial planners can show the context and point of view for why these instruments can help the client minimize the probability of running out of money.
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