Help clients avoid short-sighted mistakes in today’s economic environment

By Eric Henderson

It has been tough to watch the news lately and not feel concerned about the economic environment. Whether it’s failed banks, our nation’s debt, inflation, an impending recession, volatile markets or congressional gridlock, you can’t blame the average investor for feeling nervous about what they see in the news or being tempted to make an emotional decision about their investing strategy.

It’s not surprising that, according to Nationwide’s Advisor Authority study, 51% of investors who are not retired say they are terrified about their long-term and post-retirement financial futures, with 41% checking their retirement account balances more than three times a week in today's volatile market.

Advisors and financial professionals are in a critical position to help clients navigate their economic worries by reinforcing the importance of sticking to a long-term plan or providing solutions that mitigate risk and help clients rest easier about their financial future.

The national economic backdrop looks bleak

Today, America’s national debt is approaching $32 trillion, further igniting public concern about the rise in federal spending. Pressure on the deficit will only increase as servicing the debt is considered one of the largest expenses for the federal government. This continues to be a bipartisan challenge. However, our debt continues to rise while the debate continues about whether to cut spending, raise the debt limit, raise taxes or borrow more.

Government spending increased by about 50% from 2019 to 2021, largely due to the COVID-19 pandemic. However, tax cuts and stimulus programs, as well as growing costs associated with Medicare and Social Security, have grown the deficit further, with rising interest rates exacerbating the problem.

Now as we approach the second quarter of 2023, the United States is facing further uncertainty over the debt ceiling. If the limit is not raised by summer, the Congressional Budget Office estimates it will default on its debt, leaving many concerned about the country’s long-term financial standing. The government’s ability to repay what it owes hangs in the balance, potentially leading to negative long-term impacts for investors.

Although I’m hoping for the best, I think we all should be prepared for the economic and political news cycle to continue leaving investors feeling unsettled for the foreseeable future. As we watched several regional banks struggle to keep their doors open in the past month, it’s clear we’re far from out of the woods when it comes to things that might keep clients up at night.

The value of an advisor

The good news is that the guidance advisors can offer to their clients has proven successful according to our Advisor Authority survey, with 89% of investors saying their relationship with their financial professional gives them confidence in their investment decisions.

Advisors have the opportunity to offer insights on the history of the capital markets, underscoring how economic fluctuations are normal and that taking a long view of stock market investments has proven to be an effective way to build wealth. It’s also worth highlighting the risk of sitting out of investment markets at a time when inflation is already diluting the value of clients’ current retirement savings.

Offering the right solutions

It is important to note that there are more financial solutions available to clients now than during the 1970s and 1980s when inflation levels matched today’s record highs. Today, advisors are able to provide solutions to clients that safeguard against market loss and mitigate risk.

Annuity solutions, such as registered index-linked annuities, can help offer protection from market risk, while still providing growth potential. Aside from offering guaranteed income, annuities may be a great tool for legacy and tax planning and can be a good option when other tax-favored investments, including 401(k)s and IRAs, are maxed out.

High inflation and slow rising bank credit rates make annuities a more attractive solution and are worth consideration as warning signs of an economic slowdown continue to flash.

It’s my hope that lawmakers will reach a bipartisan deal later this year to avoid a worst-case scenario as they have in past debt ceiling negotiations. However, it’s clear that the challenges created by the weight of our growing debt, persistent inflation and market volatility will not disappear any time soon.

This is a great time for advisors and financial professionals to shine, offering guidance that helps clients build confidence with the right protection solutions, knowing their holistic financial plans are ready to weather the next round of economic adversity.

Eric Henderson is president, Nationwide Annuity. He may be contacted at [email protected].