As uncertainty builds ahead of the 2024 U.S. Presidential Election, many investors are seeking ways to protect their retirement savings from potential market risks. According to a new report from Nationwide, financial advisors are increasingly recommending strategies like Fixed Income Annuities (FIAs) and Registered Index-Linked Annuities (RILAs) to help shield portfolios from volatility. While these products can offer certain protections, at Runnymede Capital Management, we believe that Buffer ETFs provide a more efficient and flexible solution for safeguarding retirement portfolios—particularly in volatile election years.
In this article, we'll explore the growing trend of annuities, why Buffer ETFs offer a better alternative, and how to prepare your portfolio for election-driven market turbulence.
Why Portfolio Protection Matters, Especially in an Election Year
Election years are often characterized by heightened volatility as markets react to political uncertainty, potential policy shifts, and election outcomes. For retirees and those nearing retirement, market drops can be particularly damaging because they have less time to recover from significant losses. As a result, many investors are seeking strategies that focus on portfolio protection during these volatile periods.
According to Nationwide’s report, 55% of advisors now recommend Fixed Income Annuities (up from 50% last year), while 47% recommend Registered Index-Linked Annuities (up from 39%). Both products are designed to protect against market downturns, but they come with limitations that Buffer ETFs can overcome.
Understanding the Appeal of Fixed Income Annuities and RILAs
Fixed Income Annuities (FIAs) provide a guaranteed income stream, which can offer peace of mind in retirement. However, they often lock up your money for years and can carry high fees. FIAs are designed for stability, but they lack the flexibility that many investors seek, especially if markets recover or new investment opportunities arise.
Registered Index-Linked Annuities (RILAs) offer a way to participate in market growth while providing a level of protection against losses. However, RILAs can be complex, expensive, and illiquid. You may face surrender charges if you need access to your money early, and the fees associated with RILAs can eat into your returns over time.
Why We Prefer Buffer ETFs for Portfolio Protection
At Runnymede, we generally believe that Buffer ETFs offer a better solution for protecting retirement savings in an election year. Here’s why:
1. Lower Cost
Compared to annuities, Buffer ETFs are significantly more cost-effective. Fixed Income Annuities and RILAs often come with high fees, including administrative costs and surrender charges. These fees can erode your returns over time, making it harder to grow your retirement nest egg.
In contrast, Buffer ETFs have lower expense ratios, making them a more affordable option for protecting your portfolio. These ETFs don’t carry the same hidden costs or surrender penalties as annuities, which means more of your money stays invested and working for you.
2. Liquidity
One of the major drawbacks of annuities is their lack of liquidity. With FIAs and RILAs, your money can be tied up for years, making it difficult to access your funds in case of an emergency or unexpected expense. Early withdrawals often come with hefty surrender charges, limiting your financial flexibility.
Buffer ETFs, on the other hand, trade like stocks. This means they offer intraday liquidity, allowing you to buy or sell them at any time the market is open. Whether you need to access your funds or make adjustments to your portfolio, Buffer ETFs give you the flexibility to react quickly to changing market conditions.
3. Defined Outcomes with Downside Protection
Buffer ETFs are designed to provide downside protection while still allowing for market participation. With Buffer ETFs, you can invest in a portfolio that tracks the performance of a specific index (such as the S&P 500) while being buffered against a certain percentage of losses.
For example, if the market declines by 10% and you’ve invested in a Buffer ETF with a 10% buffer, your portfolio wouldn’t experience any losses. On the upside, Buffer ETFs do have caps, meaning your gains are limited to a certain percentage. However, the combination of downside protection and potential for growth makes Buffer ETFs an appealing option during volatile election years.
4. Transparency and Simplicity
Buffer ETFs are more transparent and easier to understand than many annuity products. With FIAs and RILAs, the fine print can be complex, with various fees, terms, and surrender charges that may not be immediately clear. In contrast, Buffer ETFs provide a straightforward approach, allowing you to know your potential returns and risks upfront.
The simplicity of Buffer ETFs makes them an ideal choice for investors who want a clear understanding of how their money is being protected and how much they stand to gain or lose.
Preparing Your Portfolio for Market Volatility
As we approach the 2024 Presidential Election, it's worth considering a portfolio protection strategy if it aligns with your investment goals and objectives. Market volatility is often driven by unpredictable political outcomes, and while timing the market can be difficult, there are steps you can take to prepare:
- Diversify Your Investments: A well-diversified portfolio can help spread risk across different asset classes, reducing your exposure to market downturns.
- Consider Buffer ETFs: Buffer ETFs offer an excellent way to participate in market growth while protecting against downside risk, making them a valuable tool for retirement savings.
- Stay the Course: While it may be tempting to make drastic changes in response to market volatility, history has shown that staying invested and sticking to a solid financial plan often leads to better long-term outcomes.
Protecting Your Retirement Savings with Buffer ETFs
In times of uncertainty—whether it’s due to an election year, geopolitical risks, or recession fears—it’s important to have strategies that can protect your portfolio from major downturns. While annuities like FIAs and RILAs are growing in popularity, they come with limitations such as high costs, illiquidity, and complexity.
At Runnymede Capital Management, we believe Buffer ETFs could provide a better solution for protecting your retirement savings. With their lower costs, liquidity, and clear downside protection, Buffer ETFs can help you safeguard your portfolio while still participating in market growth. Of course, these strategies are not for everyone and will depend on your unique goals and objectives.
If you’d like to learn more about how Buffer ETFs can fit into your investment strategy, contact us or watch our on-demand webinar.
