DOES ANYBODY REALLY
KNOW WHAT TIME IT IS?
Michael Gillespie

Michael Gillespie is Vice President and National Sales Manager, Prudential Annuities. For more information, visit Prudential Financial.
 
 

IT WAS A VERY COLD day in January when I looked at my 401(k) statement. Looking at the balance, I wondered whether I stepped back in time to 2002, or maybe the year I started in the business, October 1987. The reality was it was the winter of 2009—and it was one of the coldest in recent memory.

On my way a few days later to an investment conference in sunny San Diego, I was comforted by the thought that winter would soon melt into spring, which would blossom to summer. As I was moving through the time zones, I thought of how closely the changing seasons resemble the cyclical nature of our economy.

The S&P 500 has had total return losses of 20 percent or more four separate times in the calendar years from 1934 - 2008. In three out of four of these years, the S&P then gained an average of 32 percent in the year following the loss.

I realized that no matter how bad things seemed, our economy was going to grow again. Although past performance does not guarantee future results, recent rallies in the market provide a cause for optimism. It's a whole new world out there for small investors, and there was no reason to avoid looking at all the options.

All that pondering about how cruel our winter was—economic- and weather-wise—made me think of some of the things I like about winter. As I walked into the warm San Diego sun, I thought about how winter is a good time for reflection, often a much needed cooling off period.

We know the S&P 500, through all the ups and downs, grows at an average annual rate of about 10 percent. But the ordinary investor only averages 4-5 percent.¹

How do we stay the course and keep our clients warm enough during this economic winter to ride it out until the first thaw?

Let's keep these points in mind:

• Although the weather is warming, we're still in the winter of our economic cycle. But throughout history, growth eventually follows a recession.
• The market recovers in advance of the economy. The S&P 500 has had total return losses of 20 percent or more four separate times in the calendar years from 1934 - 2008. In three out of four of these years, the S&P then gained an average of 32 percent in the year following the loss. It's easy to miss the gain if you're not in the market.²
• Investment strategies once restricted to institutional investors and hedge funds are now available to investors.

So what do we do?

We need to begin to change investor behavior. Our economic winter led people to move money into fixed vehicles. Many investors are still attempting to use these short-term solutions to address their long-term retirement needs. A client's retirement nest egg may not grow enough if it's only earning two or three percent.

Today's annuities with optional benefits (available for an additional fee) that provide income guarantees are critical to investors focused on retirement income, specifically those with less time to recoup major losses. The market decline has left these investors feeling they have only two options: Live off less or work longer. There is a lot we can do to help our clients. For starters, we can:

Many investors are still attempting to use these short-term solutions to address their long-term retirement needs. A client's retirement nest egg may not grow enough if it's only earning two or three percent.

• Revisit the financial plan. Help clients reassess, or maybe dig in their heels to stay on course with the long-term plan.
• >Be visible. The economic winter leads investors to retreat; however, this is the time that clients rely most on our advice. Schedule in-person, one-on-one reviews or small client seminars/town hall meetings. Use your retail business partners and leverage your wholesalers to help provide content and share in the cost of these events. Look clients in the eye and help them carefully evaluate their investment options. At the very least, call or email, but let your clients know that you're available.

We are in difficult times, but our economy has great resolve. The challenge is ensuring we're ready for the first bloom. With your help, investors can relax a bit and enjoy the season ahead. Does anybody really know what time it is?

¹By the Numbers Research, By the Numbers, January 19, 2009 Edition
² Michael A. Higley, By the Numbers, January 19, 2009 Edition