By: One World Publishing

The growth of the nation’s gross domestic product (GDP) is a relatively reliable indicator of the health of the economy. There’s always some fluctuation, but when growth slows dramatically, it’s a sign to investors that it might be time for a change in strategy.

In the final quarter of 2023, the GDP showed an impressive growth rate of 3.4%. However, in the first quarter of 2024, it grew by 1.3% annually. Ty J. Young, founder of Ty J. Young Wealth Management, has insight for investors considering preserving their retirement investing strategy during uncertainty.

The Optimal Defense

Young has found that when GDP growth is slower than expected, retirement portfolios generally adopt a defensive posture. Preserving existing capital is the primary goal, with modest returns the second. Essentially, this is not the time to take significant risks in hopes of growing your investments.

Young notes that the slowing GDP growth is a harbinger of a stock market slowdown, and he advises his clients to start taking action now. “When GDP growth slows, that can be a leading indicator that the stock market is slowing down,” he says.

Young often suggests a particular type of investment when advising clients to adopt a more defensive strategy. “Now, more than ever, we’re recommending a fixed index annuity to our clients,” he says. “It allows our clients to participate in stock market gains and not lose money when the stock market goes down.”

A fixed index annuity is one of the secure investment products. Similarly to a CD, a fixed index annuity pays returns at a fixed interest rate over time. This means that you’ll know exactly how much money you’ll make over the annuity term before you invest.

The fixed rate will not change even if the stock market performance drops dramatically during the annuity’s term. The returns will be very modest, but their main advantage is that they are.

Some investors generally prefer annuities with variable rates. In times of significant economic growth, variable-rate annuities can be wise investments. However, when the economy is slow, and the near-term future doesn’t look exceptionally bright, an assured modest return is generally better than taking on the risks that come with variable rates.

The Importance of Diversity

Fixed annuities are one of the ways to defend your portfolio. But as any investor knows, it’s unwise to pour all of your assets into a single type of investment. During times of economic uncertainty, it’s essential to maintain a diversified portfolio. That diversification should be across both sectors and countries. As the U.S. GDP growth rate slows, it’s still possible for another country to see growth in one or more industries.

If you work in finance, you might not know which countries to include in your investments. This is where an advisor can help. A good financial advisor will be familiar with stock market trends and offer personalized strategies for diversification.

Slow GDP Growth Isn’t the Only Problem

The slowing of GDP growth isn’t the only threat to investors’ portfolios. Inflation continues to run high, and that factor, combined with the sluggish rate of GDP growth, is troubling—for both portfolios and everyday life.

“The problem investors face is inflation has been running rampant for over three years,” Young says. “Food and fuel are up approximately 30% already. The rate at which consumer items are going up in price is choking the middle class. When you add that to poor GDP growth, it’s a cause for concern.”

Ordinary Americans may be unable to reduce inflation, but they can take steps to preserve their wealth and purchasing power.

At Ty J. Young Wealth Management clients receive the advice to invest their money in ways that protect against market losses, minimize fees, and maximize returns.  “We’re recommending our clients put their money in a place where it’s protected against market losses, have minimum fees, and maximum rates of return.”

Inflation often leads to reduced investment capacity, with some needing to liquidate assets to cover expenses. Wage growth hasn’t kept pace with inflation, diminishing purchasing power. While liquidating assets isn’t ideal for your portfolio, it can be a better option than accruing high-interest debt during tight financial times.

The Right Guidance Is Important

Minor GDP slowdowns don’t generally call for significant shifts in investment strategy. However, in cases like the present — where GDP has slowed significantly and might continue to do so — the prudent course of action is to seek out expert advice.

A professional financial advisor can review your portfolio and devise strategies to help you preserve your hard-earned retirement.

Published By: Aize Perez