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What Are Fixed Hybrid Annuities?

What Are Fixed Hybrid Annuities?

For many retirees, the term “fixed hybrid annuities” is not yet a household term. Hybrid annuities have received more mentions in the press lately, but touching on what they are — and what they can do — is still largely a mystery for potential investors.

Hybrid annuities are a retirement pension plan like option that allows buyers to earmark funds to fixed and variable annuity units. Most of these hybrid annuities give the investor the ability to choose the amount of allocation funds to the more conservative, fixed return investments, and how much to allocate towards higher risk annuity investments. This offers a lower but assured rate of return, and the potential for for higher returns.

According to Investopedia, “[…] Hybrid annuities can be useful for those who have longer time horizons and wish to participate in the stock and bond markets.”

In the last few years, especially since the mid to late 2000s (The Great Recession), retirement portfolios had shown lagging returns, so the prospect of a different approach has become more popular in the following years. Goldstone Financial Group has been one of the vanguards leading the charge in trying different ways to improve positive cash flow into the hands of the investor in this low risk and immediate annuity class. The latter is an annuity built on the premise that there is a need to create lifetime income that still allows access to the initial investment or principle. This allows for freedom that is attractive for most investors wanting the freedom of having access to their income stream.  

Before the 2008 economic downturn, many financial investments in the market were showing stagnation, low returns and little movement. For 60 years up to this point, the fixed hybrid annuities were untried, but since then, investors are more open to trying to break the same old, tried and over-tried methods. In an earlier post, we reported that it is the fear of losing that have caused financial advisors to stay the course — which stopped working:

The concept of being “well diversified” in today’s market is completely different than it was back then.  Being exposed to uncorrelated and low correlated asset classes is a great start, but at Goldstone Financial Group we have learned that you have to position clients to be even more prepared. Then it becomes a matter not of living in fear of an economic downturn, but rather of being prepared for one.

With 78 million baby boomers heading into retirement, a lot of people are wondering how they will comfortably retire in a volatile market. At Goldstone Financial, principals and co-owners Michael and Anthony Pellegrino approach this through a combination of strategies that many investment advisors either don’t have the experience to employ, or don’t feel their clients will respond well to.

Fixed hybrid annuities’ popularity has become the fastest growing annuity in the past few years with its income stream, minimal risk and growth being a no brainer for today’s market. Though a financial article on fixed hybrid annuities will not answer all your questions, making investors aware of their benefits should be enough for you to ask your financial advisor: What are fixed hybrid annuities? It will be soon enough before they become a household term.


3 Ways To Evaluate Your Appetite for Financial Risk

3 Ways To Evaluate Your Appetite for Financial Risk

A person’s appetite for financial risk—in other words how conservative or aggressive they are—is generally thought to correlate with the amount of return they have when investing. Of course, more risk doesn’t always mean more reward. In fact, the more effective application of risk appetite is in understanding your personal risk tolerance and how that should apply to your investment strategy—not the other way around. Understanding your appetite for risk is an important factor in making decisions about your portfolio, especially during times of change and volatility in the market.

There are many different approaches to assessing your appetite for risk, all which vary significantly from person-to-person. However, there are three factors that should be considered across the board:

Time Horizon: This metric looks at the amount of time your money will be invested. The shorter your horizon, the less likely the market has time to correct itself to allow you to recoup any potential losses. That means that for shorter-term commitments—for example, in the event that an investor is looking to withdraw the money for a large purchase in the near future—it’s generally smarter to go with more conservative investment strategies. A longer time horizon, on the other hand, is conducive to riskier or more aggressive investment strategies, because the market can go through multiple fluctuations before that money needs to be accessed.

Amount you have to risk: This is directly related to a person’s risk tolerance. Essentially, the more money you can afford to lose or, at the very least, tie up for a significant period of time, the higher your risk tolerance. It’s important to consider this in advance so that you avoid getting into a situation in which you have to sell off any stocks or investments, and get forced out of a position too early in order to have access to liquid funds.

The goal of the investment: What are your goals for your investments? This is a simple question that often gets overlooked. For many the goal is not to “beat the market” or raise as much money as possible. Some investors have a specific target in mind that correlates with a life goal, and targeting a specific return is often much more effective than trying to make the most money possible. Once you understand this, you may be better able to structure your investments with this knowledge in mind.

Of course, investors should also determine their personal comfort level with investing, as unrelated to the more tangible parameters of the time horizon and amount they have to risk. Even those with a relatively long time horizon and a significant amount to invest may find that they’re more comfortable doing so conservatively. In these instances, it becomes important to listen to your intuition because your relationship with your money is intensely personal. In considering your personal comfort, consider what keeps you up at night, and what you like or don’t like about your current financial situation. A proper assessment of your appetite for risk should take into account these very important factors, which are often a little more difficult to pin point.

As such, a good financial advisor or wealth manager will want a comprehensive account of your past investment experiences—what types of accounts you’ve held and what types of investing you’ve done. Your previous behaviors in these situations will help advisors work in partnership with you to determine the best approach moving forward.  For example, many investors who are of retirement age are looking for conservative investment strategies based on their shorter time horizon, so they focus on more conservative strategies like fixed hybrid annuities and moderately positioned securities. A younger investor with a longer time horizon and greater income, may invest more aggressively—again, dependent on his or her goals and appetite for risk.

If you want to know more about your own appetite for risk, there are plenty of resources that can provide more insight into this area, such as, this Investment Risk Tolerance Quiz developed by Rutgers University, or another assessment developed by CNBC’s Money Control. However, the best approach is probably to work with a professional advisor or investment expert who can evaluate your appetite for risk in conjunction with an extensive understanding of the industry and market.

No matter what your risk appetite, the world of financial investing has changed a good deal over the last decade. This changes people’s relationship to money and as advisors we have to be cognizant of that, because it is ultimately what controls investors’ comfort level and their perception of their own success. A crucial piece of this involves understanding each client’s appetite for risk.

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About Goldstone Financial Group

About Goldstone Financial Group

At Goldstone Financial Group, we believe that your financial future is far too important to leave to chance. We view it as our responsibility to thoroughly understand your goals and dreams so that we can leverage our experience and expertise to help you realize them. Rather than approach your finances with an outdated, transactional approach focused on particular products, we serve as your comprehensive financial solutions provider, forging a deeper relationship and creating a plan that can be adjusted as needed to help you reach your unique personal goals.

We are committed to remaining by your side as partners in achieving the results you desire. We provide financial plans targeted at earning consistent, reliable returns in all market environments, regardless of fluctuations and uncertainties.

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