Even as stocks largely erase losses since the U.S. outbreak of the coronavirus began earlier this year, investor appetite for risk is declining, according to one expert.
“I think as baby boomers are facing retirement, they’re looking for ways that continue to participate in equity-like returns,” said Corey Walther, president of Allianz Life, in a conversation with Yahoo Finance. “But at the same time, maybe do it with solutions or products that might take risk off of the table.”
After setting record-breaking 401(k) balances in the past few years, retirement investors saw their average balance drop 19% in the first quarter to $91,400 from the fourth quarter, a shocking reversal of fortunes that jarred even younger investors who have time on their side, Walther said.
“They’ve had a couple of recent crises, whether that be the COVID crisis and how that’s impacted the market, but also going back to 2007 and 2008,” Walther said. “That has them second-guessing about ‘Is this now the right time to put money to work in the market?’”
Exchange-traded funds are baskets of securities traded on the stock exchanges. Annuities, on the other hand, are insurance contracts which offer a stream of payments to retirees in case they outlive their savings.
“We’re seeing a rise in the prominence of annuities being used quite extensively to address things like longevity risk, or transferring that risk of outliving one’s assets and addressing sort of that catastrophic loss of something that can’t necessarily be diversified away,” Walther said.
Walther pointed out that there’s a 1-in-4 chance that couples could live to be 96 and older, which could stress their retirement savings.
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“The time somebody may spend in retirement can be quite extensive,” Walther said. “And so individuals really need to take that into consideration in terms of how can I still continue to stay invested in the market, but maybe do it [by] accessing and utilizing some of these products to take some of that risk off the table.”
For those seeking to safely trade, Walther said his firm released a new buffered outcome ETF for the everyday investor, which were traditionally made for institutional investors.
“In essence, [this] allows retail investors to access full liquid ETFs on the New York Stock Exchange to still have and achieve some of that upside potential that investing in an index like the S&P 500 can offer,” Walther said.
Buffered ETFs, also known as defined-outcome ETFs, put limits on how much investors can gain when stocks rally in exchange for a shield against market losses.
“There is a level of predefined outcome and a buffer on the downside,” Walther said, “to really allow people to smooth out some of that volatility and have a more predictable future for their retirement income.”