Looking at a graph of the Dow Jones or S&P 500 returns over the past several years may appear more like a roller coaster at an amusement park – and the uncertainty may also cause you to similarly scream.
In fact, about the only constant in the market lately is volatility. And, while many investors are aware that the record-breaking highs can’t go on forever, it’s impossible to find that fine line between when to get out safely and when you might lose out on future gains.
Unfortunately, though, hindsight is always 20/20. So, how can you determine when you need to buckle up?
There are a few key indicators that can be helpful. Equally important is to take heed, though, because just simply having a safety belt won’t do you any good – you actually have to take action and put it on.
Paying Attention to the Right Signs
While nobody has a crystal ball that will predict the stock market’s movements in the future, there are some numbers that could possibly provide you with some insight regarding when the next market downturn could arrive. For example, looking back over the years, there were some similarities that occurred prior to the 2007 “inflection point,” when the market swung from moving up to moving down. These include:- Dividend yields – Today, dividend yields tend to remain high, and are in fact, still hovering above the October 2007 inflection point – just prior to a major market and economic recession in the U.S.
- Interest rates – Over the past 10+ years, the U.S. has been in the midst of a historically low-interest rate environment. And, even though rates are expected to rise over the next year or so, just how many times these hikes will occur remains uncertain. Because interest rates and the stock market typically have an inverse relationship, numerous rate increases could prove to be problematic for equity investors…and particularly those who are quickly approaching retirement.
- Valuations – Price valuations, which are measured by the price-to-earnings ratio of equities, are higher today than they were before the last market crash. And although investors don’t want to lose out on any future profit opportunity, it can also be easy to lose everything while trying to squeeze out just a bit more return.
You Don’t Have to Stay in the Slow Lane to Arrive Safely
Finding that middle ground between growth and safety does not necessarily have to be an either/or scenario. Over the past several years, many investors have turned to fixed index annuities – which can actually offer both. With a fixed index annuity or FIA, the return is generated in large part based on the performance of an underlying market index. Some of the more common indexes that are tracked include the S&P 500 and the DJIA (Dow Jones Industrial Average). When the index that is being tracked performs well, the annuity is credited with a positive return – typically up to a certain maximum, or “cap.” However, if the index performs poorly in a given year, rather than being credited with a negative return, the annuity simply receives a 0% for that time period. So, although a fixed index annuity can offer the opportunity to attain a higher return than a CD, a money market fund, or even a regular fixed annuity, the principal is also protected, regardless of what occurs in the market. FIAs also provide an added bonus by way of an ongoing income stream. By opting for the lifetime income option, it can alleviate the worry about running out of income at the time you may need it the most. Many of the fixed index annuities in the marketplace today also offer the ability to increase the amount of income that you receive over time. This can help to keep your future purchasing power on track, even in light of inflation.Ready to Take Your Hard Earned Savings Off the Collision Course?
In today’s stock market, you never know when you will encounter twists and turns along the road – and the faster you head into a crash, the more impact it could have. So, if you’re ready to take your savings out of harm’s way, we can help. At Annuity Gator, we’ll work with you on determining the best route to your destination, as well as choosing the right vehicle to get you there safely. If you’re ready to test drive our services, just contact us here
