In today’s economic landscape, where market turbulence and banking instability loom large, it’s understandable that many consumers are feeling a sense of financial unease. The apprehension surrounding banking failures, combined with the Federal Reserve’s decision to raise interest rates without corresponding adjustments for depositors, has led to a decline in deposits. Additionally, traditional bonds, once seen as a reliable source of returns, are now yielding less than they did five decades ago. So, where does that leave investors who are seeking both protection and growth for their portfolios?

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Limited Bond Power in Portfolios

Let’s take a closer look at the role of bonds in balancing portfolio protection and growth. Bonds have long been considered a method to mitigate market risk while still achieving acceptable returns. However, in today’s volatile market environment, the traditional approach may not always align with the needs and objectives of investors.

One of the key considerations is the impact of rising interest rates on bond performance. Long-term bonds, in particular, may lose value as interest rates rise, while short-term bonds are less sensitive to rate increases but offer lower income potential. This dilemma leaves investors searching for alternative strategies to safeguard their portfolios while still pursuing growth opportunities.

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84%of retirees want to protect their portfolio from significant losses, even if they perform under the market.²

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Today’s Bond Performance and Impact on 60/40 InvestmentRule

Enter the 60/40 investment rule, popularized by NobelLaureate Harry Markowitz, which suggests that 60% of a portfolio should be invested in stocks and 40% in bonds. However, given the current market conditions, this traditional approach may need to be reevaluated.

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The New 60/40 strategy gaining traction is the inclusion ofFixed Indexed Annuities (FIAs) in portfolios, offering enhanced market protection, principal preservation, and potentially more robust growth. Unlike traditional bonds or bank CDs, FIAs provide a 100% financial reserve feature, ensuring that investors maintain their funds in a secure, liquid form while still earning competitive returns.

With FIAs, investors can protect their principal from market volatility while still participating in market-like returns. Additionally, FIAs offer the advantage of generating essential retirement income without the need to dip into the growth segment of a portfolio, making them an attractive option for those looking to secure their retirement savings and establish a reliable income stream.

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According to portfolio analysis, Monte Carlo portfolios that split assets into 60% equities, 20% bonds, and 20% FIAs can significantly outperform traditional 60/40 portfolios.³ This approach results in accumulating more assets in the majority of simulated scenarios and increased retirement spending with the inclusion of living-benefit riders. 

In conclusion, while the traditional wisdom of the 60/40investment rule has served investors well in the past, today's uncertain economic landscape calls for a more nuanced approach. By incorporating fixed indexed annuities into portfolios, investors can achieve a balance between portfolio protection and growth, ensuring a more secure financial future in the face of market volatility.

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¹ https://www.bloomberg.com/markets/rates-bonds/government-bonds/us

² “U.S. Annuity Markets 2020: A Decade of Adaptation,”The Cerulli Report.

³ Returns are based on the performance of an underlying index, such as the S&P 500®. While the benchmark index does follow the market, an investor is never directly exposed to the stock market.

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