Interest rates can positively or negatively affect the U.S. economy, the stock markets, and your portfolio. With The Fed increasing the target range for the Federal Funds Rate to help contain soaring inflation, there is no way of knowing how the market will react over time. Rising interest rates, high inflation, and a bear market create market volatility.
When these conditions occur, diversification is essential so that if specific strategies decline, others offset the decline and accumulate in value. Diversifying by including strategies from various industries, countries, or risk ratings may help make market conditions much more tolerable to some investors. However, diversification does not guarantee a profit or protection from losses in a declining market. During a bear market, trading strategies often shift toward safety. Here are some strategies to consider:
REITs- Real estate investment trusts (REITs) consist of real estate assets that typically produce income at different times. REITs must distribute 90% of their taxable income as dividends to investors. REITs develop and improve their properties to produce returns, sell them, and reinvest in other properties, aiming to produce positive returns for investors. Specific-sector investing such as real estate can be subject to different and greater risks than more diversified investments. Declines in the value of real estate, economic conditions, property taxes, tax laws, and interest rates all present potential risks to real estate investments.
Indexed annuities- An annuity is a contract with an insurance company that is designed to provide an income stream during retirement. Indexed annuity returns are based on an index like the S&P 500. If the value of the index goes up, you receive a return based on that value. If the value of the index goes down, you receive a guaranteed minimum interest rate. Here are other things to know about indexed annuities:
- Your principal is protected during a down market, and you won’t lose your initial investment or accumulation.
- Accumulates on a tax-deferred basis.
- The return is based on an index, which increases the annuity’s value over time.
- Provides a guaranteed lifetime income and protection against longevity risk since you receive annuity payments for life. Current minimum return, principal value, and prior earnings guarantees by the issuing insurance company, subject to their claims-paying ability, and contract provisions.
- Annuities may not be appropriate for all investors. Please contact your financial professional or insurance producer for complete details.
Dividend-paying stocks- Dividend-paying stocks may pay higher dividends than interest-rate sensitive strategies or depository products. The combination of price growth potential and income may outperform inflation over time. Dividend-paying stocks come with risks, so it’s essential to determine if they are an appropriate strategy for your portfolio.
You should never invest solely on the basis of dividends. Higher dividends will result in lower retained earnings. Dividend payments are not guaranteed by the issuing entity
Short-term debt- Shorter-term bonds such as Treasuries have an inverse correlation to the stock market and tend to rise in price as stock prices fall.
TIPS- Treasury inflation-protected securities (TIPS) are indexed to inflation and twice a year payout at a fixed rate. TIPS come in three maturities: five-year, ten-year, and 30-year.
Precious metals- Precious metals purchased directly or through exchange-traded funds may produce positive returns during prolonged bear markets because they hold their value and offer a hedge against inflation.
Investments in precious metals involve risk. Investments in precious metals are not suitable to everyone and may involve loss of your entire investment. These investments are subject to sudden price fluctuation, possible insolvency of the trading exchange and potential losses of more than your original investment when using leverage. All investments involve the risk of potential investment losses, and no strategy can assure a profit. Your financial professional can help you determine if these strategies are appropriate for your situation or if now is the suitable time to diversify your portfolio as you work towards your goals.
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