Have you heard the saying “don’t put all your eggs in one basket”? This is a wise saying when it comes to your retirement savings.
Investing your money can help it grow. However, there is a risk that your investments won’t do as well as you’d hoped. To lessen this risk, investors may choose to diversify.
Investopedia describes diversification as "the process of spreading investments across different asset classes, industries and geographic regions to reduce the overall risk."
With your retirement savings spread among a variety of methods, if one performs poorly, it won’t matter as much. Better-performing methods can help make up for the poorly performing one. Seeking out financial products with built-in downside protection balanced with some upside potential can help you avoid dramatic swings in value and see a more consistent overall rate of return.
Life insurance and annuities: two ways to help diversify your retirement savings
Insurance products like fixed indexed universal life insurance and fixed indexed annuities allow your savings to grow conservatively while ensuring you won’t lose value due to market fluctuations:
- Fixed indexed universal life insurance helps protect your loved ones in the event you’re no longer there. It also gives you the opportunity to save more toward retirement – beyond annual 401(k) limits, for example – in another tax-advantaged product.
- Fixed indexed annuities grow tax-deferred. They can be designed to offer accumulation, retirement income or both.
Products like these can become increasingly valuable the closer you get to retirement, as you have less time to make up for market losses.
Options to diversify within your life insurance or annuity policy
Some life insurance policies and annuities also offer ways to diversify your savings through their interest crediting options. That could mean giving you a choice of how to allocate the premium and interest your policy generates.
If your policy allows, you can choose to allocate your premium and interest in a range of diverse options, including market indexes that track the performance of a common group of equities, or stocks, like the S&P 500®.
Your money is not actually invested in the underlying components of the index, but you earn interest credits based on the index’s performance. If it goes up, you get a portion of the upside, subject to cap, spread and participation rates. If it goes down, you won’t lose money – the worst you can do is see no gain.
It is important to note that both fixed indexed universal life insurance and fixed indexed annuities have fees that reduce the account value, so be sure to check your policy documents so you can fully understand any fees your policy may have.
These opportunities to diversify can help you avoid risk and protect your retirement savings. Learn more about why life insurance and annuities are both good “eggs” to have in your financial “basket”.
