Helping clients navigate the fixed-income storm

Pre-retirees in America face a conundrum. Research shows over half are rethinking their retirement plans because of the pandemic and current economic crisis, and many are reconsidering just how much money they’ll need when they retire. The pandemic has challenged many to remain optimistic about their portfolios, with 70% now feeling more pessimistic about their retirement plans.

Meanwhile, financial professionals are being put to the test as they attempt to help answer the million-dollar question from many clients: How can they build a portfolio for growth, yet maintain their risk tolerance in this environment when interest rates have never been lower?

To get at the answer, we first must examine where investors have historically turned in the face of market volatility and uncertainty. Fixed-income investments have offered a sound solution. The potential for capital appreciation, the ability to hedge against equity losses, and high yields have built a strong value proposition for this solution — for decades.

But today the 40-year bull market in bonds appears to be coming to an end, leaving many in a tough spot. With yields at historic lows, the ability of fixed income to deliver on its storied value proposition as a portfolio ballast in times of stress is challenged, to say the least. Today, the risks of fixed income run high while the return potential is extremely low. In fact, asset managers are targeting a range of returns of just 1% to 3%, versus historical returns of more than 6% over the past 30 years.

Financial professionals are being challenged to find new strategies as they look to boost clients’ return potential.


Lincoln Financial recently surveyed investors to find out what they are doing in this current environment to deal with market volatility. Nearly 60% of those over the age of 55 plan to stay diversified and “wait it out,” and nearly a third plan to do “nothing.” Sports may look quite different these days, but there’s no reason for your clients to remain on the sidelines and risk missing out on potential gains.

There may be a better solution — and one that could deliver a more compelling outcome than fixed income alone. The unlikely and creative provider of this solution, you ask? Insurance companies.

A new annuity product category has emerged in recent years that can help provide clients with potential growth and upside, yet very meaningful downside protection. Referred to as registered indexed linked annuities, or RILAs, these products are customizable with a myriad of investing options. Clients can pick and choose what level of protection and term level they feel is best for their individual preferences and goals.

For example, one RILA option provides a 20% level of downside protection in a six-year term. Over the past 30 years, the S&P 500 has never gone below this 20% level on a six-year solution. This option helps to mitigate downside risk and offers clients a much higher income potential than what they’d receive with fixed income – earning up to 150% over a six-year period in this current environment. With this RILA, the insurance company absorbs any dollar loss up to negative 20%. If history repeats itself, not $1 will be lost.

[More: Demand for some annuities rising in COVID-19 market]


Financial professionals continue to be challenged in this environment to find solutions for clients that offer meaningful portfolio protection and upside potential. This will mean thinking outside of the traditional 60/40 equity-to-fixed-income asset allocation and embracing a new, more diversified approach.

As you construct portfolios to solve for today’s challenges, consider shifting a portion away from fixed income to a RILA strategy.

A portfolio that provides a mix of equities, fixed income and an index-linked annuity arguably could be the answer that helps keep clients on track to meet their retirement savings goals. This portfolio — positioned for growth without taking on more risk than a client is comfortable with — may stand the best chance of weathering today’s storm.

[More: 3 tips on building recession-ready retirement income plans]

John Kennedy is head of retirement solutions distribution at Lincoln Financial Group.

The post Helping clients navigate the fixed-income storm appeared first on InvestmentNews.

As our second lead editor, Cindy Hamilton covers health, fitness and other wellness topics. She is also instrumental in making sure the content on the site is clear and accurate for our readers. Cindy received a BA and an MA from NYU.

You May Also Like

Leave a Reply

Your email address will not be published. Required fields are marked *