Taming market volatility risk is a must for investors

Following recent market volatility, most Americans want to reduce risk in their financial strategy and bolster their portfolio against future volatility, according to the 2024 Q3 Quarterly Market Perceptions Study from Allianz Life Insurance Company of North America. In fact, a whopping 73% of Americans said that they would stop using their current financial professional if they didn’t help them reduce exposure to market volatility.

Many Americans are addressing the risk of market volatility in their financial strategy, the survey said, and most Americans (51%) said that they have made changes to their investments to make them less risky or more conservative because of recent market volatility.
Millennials especially are worried about market conditions. More millennials (58%) said that they made changes to their investments to make them less risky or more conservative, compared to 46% of Gen Xers and 41% of boomers.

Looking for protection

Furthermore, the survey said, the majority of Americans (59%) said that they are looking to add more protection to their portfolio after recent market volatility. Again, Millennials are more likely to say they are looking to add more protection to their portfolio after recent market volatility (68%) than Gen Xers (60%) and boomers (47%). Many worry about continued volatility and a potential economic downturn. Nearly three in four (74%) worry that the upcoming elections will cause more market volatility and 49% worry that another big market crash is on the horizon.

“Americans are feeling unsettled by some recent market volatility,” said Kelly LaVigne, VP of consumer insights, Allianz Life Insurance Company of North America. “A well-constructed financial strategy that can withstand market ups and downs can help Americans avoid fear from brief swings in the market.”

What is a well-constructed financial strategy?

And what are some of the hallmarks of a well-constructed financial strategy? “A well-constructed financial strategy,” LaVigne explained, “will help set your clients up for a successful retirement with levels of protection, risk tolerance, and contingencies built in – especially for those “unplanned events”.

This, LaVigne added, starts with identifying the client’s long-term financial goals, their tolerance for risk, and then laying out the incremental steps and alternatives to achieve the goal.
“A signature of a strong financial strategy is that it will lay out risks – inflation, longevity, market volatility – and how the strategy addresses those risks,” LaVigne said. “The strategy will also show how clients will draw upon their retirement assets for retirement income and the probability of success of that withdrawal plan.”

Helping clients with market volatility

One of the main goals of financial professionals is to help their clients address the risk of market volatility, especially as they approach retirement and first enter retirement (the Fragile Decade), LaVigne said.

First, it’s critical for financial professionals to keep their clients on track – even during times of volatility -- by preparing them for this eventuality and addressing it during the planning process.
“The goal is to keep clients from selling out of fear when the market is down and providing some contingencies for successfully navigating and mitigating volatility,” LaVigne said.

Financial professionals can also help their clients identify products that offer a level of protection to downturns in their portfolios, added LaVigne. Depending on the client’s tolerance for risk, products like fixed index annuities or registered index-linked annuities can offer a level of protection from down markets while offering potential for growth. Buffered Exchange Traded Funds (ETFs) can also offer opportunities for growth with a level of protection, LaVigne added.

Following recent market volatility, more Americans plan to connect with their financial professional, according to the survey. About three in five (61%) said that they recently have or plan to reach out to their financial professional because they are concerned about recent market conditions. This is up from 51% in Q2 2024.

Allianz Life conducted an online survey, the 2024 Q3 Quarterly Market Perceptions Study in August 2024, with a nationally representative sample of 1,005 respondents age 18+.

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