MANAGING MARKET RISKS IN THE PRE-RETIREMENT YEARS USING DEFINED-OUTCOME INVESTMENTS Executive Summary
By Michael Finke and Wade Pfau
Through the use of financial options, an institution such as an insurance company or an asset manager can construct a range of investment outcomes tailored to the needs of a specific investor. The recent historic bull market for stocks allowed many pre-retirees to approach or even exceed their retirement saving goals before the date they planned to stop working. Newly retired investors, or those near retirement, might seek an investment approach that offers greater control over their investment risk. A traditional investments approach uses a portfolio of stocks and bonds, but there are other approaches that could be better suited to an investor’s planning goals. Structured investments allow an investor to trade large gains for the avoidance or reduction of losses. Traditional portfolios cannot provide the same protection as a structured financial product provides. To understand the tools that financial engineers use to create a customized, risk-protected portfolio, we provide a few basic facts about the use of financial options.
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About the Authors
Michael Finke is a research fellow with the Retirement Income Institute, professor of wealth management and Frank M. Engle Distinguished Chair in Economic Security Research at The American College of Financial Services. He received a doctorate in consumer economics from the Ohio State University in 1998 and in finance from the University of Missouri in 2011.
Wade D. Pfau is a research fellow with the Retirement Income Institute, the program director of the Retirement Income Certified Professional designation and is professor of retirement income at The American College of Financial Services. He is the founder of Retirement Researcher.com, and his newest book is Retirement Planning Guidebook: Navigating the Important Decisions for Retirement Success.