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Diversity: Why it matters as much in finances as in relationships

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Finding social groups where you belong is human nature, and associating with people who have similar ideas and interests can be a good place to start.

So why leave this comfort zone? Whether it’s with a social network, ideas or a job, leaving what’s comfortable to explore new territory may seem intimidating. It may even feel unnecessary. But expanding your social circle is often where personal and professional growth happens. Adding diverse elements to life can help improve your well-being, expand your knowledge and allow you to form connections and build empathy, all of which can have benefits now and later in life. 

Financial diversity matters

In addition to education, careers and relationships, diversity also plays an important role in finances. Most people have a diversified financial strategy, even if they don’t consciously think about it. For instance, you may already be doing one or more of the following:       

  • Allocating monthly income.  Everyone’s priorities are different, but paychecks can cover a lot of ground, from daily living expenses to retirement savings, insurance premiums, health care costs and more. 
  • Investing for the long-term.  Generally financial experts tout the benefits of diversified investment strategies to help maximize long-term outcomes. For example, filling your portfolio with many “safe” investments, like bonds, may work against you. Because they typically have lower returns, you may miss out on higher growth potential that other asset classes could offer.
  • Balancing risk.  At the same time, if your portfolio is invested mainly in stocks, for example, the opposite may be true. While there is opportunity for higher growth, market volatility may put too much of your portfolio at risk.

In terms of retirement readiness, financial professionals generally prefer diversified strategies because they help spread out risk. They can also offer enough flexibility to allow adjustments as your specific goals or needs change. There are reliable ways to seek growth opportunities while shielding assets from volatility and locking in income guarantees for the future.

“As market conditions fluctuate, so do one’s goals, strategies and timelines. Annuities can help provide peace of mind by protecting savings from market loss and creating a source of lifetime income.”
- Mike Downing, Executive Vice President and Chief Operating Officer | Athene

The power of diversification

You’ve likely heard “Don’t put all your eggs in one basket.” Diversification is more than just having different baskets. It’s what’s in them that makes a difference. 

Allocating investments among different classes can be a powerful way to help manage risk and increase the potential for higher returns. But to fully optimize investment outcomes, there’s more to consider than a 60/40 split between stocks and bonds, for example.

Diversifying your money within the same asset class can provide a deeper level of diversification that may be more beneficial in the long run. The idea is similar to allocating 401(k) contributions with a target date fund. Based on your risk tolerance and time until retirement, the fund allocates your investments to maximize growth the further you are from retirement and gradually exposes your savings to less risk the closer you get to retirement. This approach exposes you to growth opportunities while there’s time to recover lost ground and gradually lowers the risk exposure as retirement approaches.

A similar approach is available within fixed indexed annuities (FIA) by using multiple custom index options. They allow diversification within the annuity which helps maximize growth potential and provides a level of protection from volatility. The strategy is called decorrelation, which means fluctuations in the returns of two indices move in opposite directions. Because index fluctuations tend to offset each other, the opposition helps smooth out overall returns. 

“Financial professionals and retirement savers need to know that the tax benefits, protection from market loss and growth potential they seek in a retirement savings vehicle may all be found in a fixed indexed annuity.”
- Adam Politzer, Senior Vice President and Chief Product Officer | Athene

Custom indices drive value

Investors’ changing needs and advanced technology have prompted many large investment banks and other organizations in the industry to develop custom indices inside of a fixed indexed annuity to help meet the demands of today’s consumer. Custom indices help provide meaningful insulation from volatile markets and increased potential for positive outcomes.

Two ways a custom index adds value:

  1. Built-in diversification helps improve the balance between risk and reward. Preset algorithms determine the composition of the index and weight the individual components through time to spread out investments among one or more asset classes, help reduce risk and smooth out returns.
  2. Volatility control feature helps ensure a “smoother ride.” The index is designed to limit changes in index value, producing more predictable returns.

A holistic strategy can help you stay on track

Just as widening your circle of influence can bring depth and value to relationships and how you spend your time, diversity can also add significant value in finances, such as maximizing opportunities for growth and protection to your retirement portfolio. 

Ask your financial professional about how fixed indexed annuity options could diversify and help improve your retirement saving outcomes. Or, learn how an Athene annuity, such as a FIA, could add value to your retirement plan.

Want the most from your retirement? Get smarter with Smart Strategies from Athene. Your source for tips, tools and financial solutions that can help you live your best life.

Indexed annuities are not stock market investments and do not directly participate in any stock or equity investments. Market indices may not include dividends paid on the underlying stocks, and therefore may not reflect the total return of the underlying stocks; neither an index nor any market-indexed annuity is comparable to a direct investment in the equity markets.

A diversified allocation does not ensure positive interest credits in any given year. Diversification does not ensure positive Segment Credits or protect against negative Segment Credits.