D. Scott Kenik, the Founder and Principal of Wealth Concepts Group, LLC, warns investors about the destructive power of stock market volatility. While many believe that risking money is necessary to earn money, the long-term effects of market crashes and volatility can have lasting negative impacts on their balances. Recovering losses from a crash can take years, leading to missed opportunities for profit. Kenik emphasizes the importance of understanding the impact of short- and long-term market volatility on investment portfolios.
The stock market’s history of volatility can significantly affect investment returns over time. Kenik highlights a 13-year period where the S&P experienced multiple crashes and rebounds, resulting in an average annual return of 3.48%. However, at the end of those 13 years, the S&P was back to its starting point, demonstrating how market volatility can erode gains and leave investors with no profits. Withdrawing money during down years can further deplete investment principal, compounding the negative effects of market volatility on portfolios.
The impact of market volatility and crashes varies depending on an individual’s stage in life. While losses may not be felt as acutely in younger working years, they can have significant consequences for those nearing retirement or already retired. The five years before and after retirement are crucial, as account losses during this period can impact income and retirement plans. Investors drawing from their portfolios to cover expenses are particularly vulnerable to market downturns, as these losses can lead to delayed retirement, reentry into the workforce, or even foreclosures.
To weather financial storms caused by market volatility, Kenik advises investors to build a strong foundation with safe-money options that are not subject to market losses. While traditional safe investments like CDs and money market accounts provide security, they may offer limited returns after factoring in taxes and inflation. Indexed financial tools, such as fixed indexed annuities (FIAs) and indexed universal life insurance (IUL), can offer stock-market-like performance with built-in protection against losses.
FIAs and IULs allow investors to participate in market gains without risking their principal, making them ideal options for building a stable financial foundation. FIAs can provide guaranteed lifetime income or maximum accumulation, while IULs offer tax-free growth, income, and inheritance benefits. As investors transition from working years to retirement, shifting their focus from high-risk high return strategies to safe growth and income opportunities can help protect their financial security.
Kenik emphasizes that the information provided is not investment, tax, or financial advice, and individuals should consult with licensed professionals to tailor their financial plan to their specific situation. The insights shared by Kenik, a member of the Forbes Finance Council, highlight the importance of understanding market volatility and implementing strategies to safeguard against its negative impacts on investment portfolios. By building a strong foundation with safe-money options, investors can weather financial storms and achieve stability in their retirement years.
