Risk is inseparable from return, and every investment involves some degree of risk.
If you invest in assets like stocks and bonds, you will almost inevitably be exposed to risks like market volatility and downturns.
These risks can have a serious impact on the size of your portfolio as well as your ability to draw income from it.
An effective financial strategy should incorporate asset protection strategies to help protect your portfolio against market volatility and loss. To this end, there are several tools that can help mitigate risk, preserve wealth, provide a contingency plan, and maintain capital growth and appreciation.
Here are four ways to put asset protection to work in your overall financial strategy.
When you invest in equity mutual funds, your portfolio value can fluctuate dramatically in the short term and steadily erode in the long term, depending on hard to predict and impossible to control factors.
For instance, even a modest 3% annual inflation rate can slash the real or inflation-adjusted value of your portfolio investment by 50% over 24 years.1 To counter this, investors should look for strategies to protect against inflation so investments hold their real value over time.
Real estate, for instance, typically rises in value when inflation increases. You can invest in real estate mutual funds2 or precious metal and commodity funds3 that can help hedge against inflation. Treasury Inflation Protected bond funds4 are another option since their par value increases in tandem with changes in the consumer price index.
Market volatility is another risk. While holding your investments for long periods of time can make you more likely to come out ahead, short-term returns can be volatile. Market risk can have a serious impact on overall portfolio value and how much income you can draw from it during retirement.
Incorporating fixed-value solutions such as whole life insurance into your strategy is one way to diversify risk exposure and provide added stability during downturns. Whole life involves both guaranteed5 and non-guaranteed cash value accumulation potential. The cash value portion of a whole life insurance policy can be a great way to preserve wealth and have it continue to grow over time6 as a supplement to your broader, less secure investment portfolio assets.
You’re counting on your wealth to be there when you need it most, but there’s no guarantee most investments will appreciate or even hold their value. Investing in public market assets like stocks and bonds is not a sure-fire way to preserve wealth.
You can diversify your portfolio by investing in different assets. For example, if you own mostly U.S. stocks and bonds, you may want to consider international mutual funds7.
One option is to diversify your portfolio by incorporating tax-favored financial tools into your strategy. For instance, whole life policies are funded with after-tax dollars so cash value can grow tax-deferred and cash value withdrawals to supplement retirement income are tax-free.8 Municipal bond funds9 are also a financial tool that can provide tax diversification. Incorporating tax-favored10 financial tools can help extend the portfolio’s income stream through the years by providing tax-free income that can offset income taxes that have to be paid on the withdrawals of other financial assets.
Your financial strategy should also include contingency plans to protect your family if the unexpected happens. Estate planning is a critical part of this process because it ensures your assets are distributed how you prefer in a timely and tax-efficient manner.
You should have at least the basics in place. A will provides directions for transferring assets to your beneficiaries, specifying who will get what and under what conditions. It can also name the person who will take care of your children if you or other designated caregivers pass away while they are still minors.
You may also want to create powers of attorney that empower people you trust to make financial and medical decisions for you if you become incapacitated. More specialized estate planning strategies like giving programs, charitable trusts, and generation-skipping trusts may be appropriate as well.
Insurance policies can be an important part of your contingency planning. For example, you might purchase property insurance to protect against the costs of fire or wind damage11. Life insurance, including whole life policies, help provide for loved ones if you pass away. You can also tap into this cash value while you are still alive for any unexpected expenses by borrowing against it or making partial withdrawals12. By drawing on the cash value portion of your whole life policy, you can cover unplanned costs without having to liquidate investments or assets. In most states, life insurance proceeds with a named and the current beneficiary bypass probate, which helps provide peace-of-mind that your beneficiaries receive the intended wealth you pass along to them.
Most diversified portfolios include a mix of stocks and bonds. Stocks provide the potential for growth, while bonds can offer some capital protection. However, none of this is guaranteed. Stocks prices can fall, and even bonds can lose money.
Fixed value solutions, including whole life insurance, can provide both growth and protection. Incorporating these strategies into a portfolio can provide your investment strategy with a stable dependable core.
You depend on your wealth to keep you and your loved ones secure and financially comfortable even if the unthinkable occurs, including death, disability, or loss of income. But are you protecting your wealth itself?
Asset protection strategies can introduce risk mitigation, wealth preservation, contingency planning, and capital growth into your financial picture. Talk to your financial professional about how you can fit some of these ideas into your overall financial strategy.
1 CPI inflation calculator, Bureau of Labor Statistics
2 Real estate related securities are subject to market risks that can fluctuate the value of the underlying real estate.
3 Commodities investments will generally be affected by factors specific to a particular commodity, which may include demand for the commodity, weather, embargoes, tariffs, and economic health, and other developments.
4 Inflation protected bonds are subject to interest rate risk where their value may decline when real interest rates rise and vice versa. Real interest rates represent stated interest rates reduced by the expected impact of inflation.
5 Any guarantees are based on the claims paying ability of the issuer. The benefits of a whole life policy are dependent on making a long term commitment to keeping the policy in force through the payment of premiums.
6 Dividends, which provide an opportunity for cash value growth, are not guaranteed
7 International securities are subject to currency risk where fluctuations in foreign exchange rates can adversely impact returns, and political, social and economic risks such as economic sanctions could make the investments in such securities less liquid.
8 Certain tax advantages are no longer applicable to a life insurance policy if too much money is put into the policy during its first seven years, or during the seven-year period after a “material change” to the policy. If the cumulative premiums paid during the applicable seven-year period at any time exceed the limits imposed under the Internal Revenue Code, the policy becomes a “Modified Endowment Contract” or MEC. An MEC is still a life insurance policy, and death benefits continue to be tax free, but anytime you take a withdrawal from an MEC (including a policy loan), the withdrawal is treated as taxable income to the extent there is gain in the policy. In addition, if you are under 59½, a penalty tax of 10% could be assessed on those amounts and upon surrender of the policy.
9 Municipal bonds are subject to credit risk which is the risk that the bond issuer may experience financial problems and is unable to pay interest and principal in full.
10 Neither New York Life Insurance Company, nor its agents, provides tax, legal, or accounting advice. Please consult your own tax, legal, or accounting professional before making any decisions.
11 Home / Auto, Liability, Property and Casualty, Flood, Earthquake and Umbrella Insurance are not offered by New York Life Insurance Company or its agent.
12 Accessing cash value will reduce the available cash surrender value and death benefit.
This article is provided for general informational purposes only. Neither New York Life Insurance Company, nor its agents, provides tax, legal, or accounting advice. Please consult your own tax, legal, or accounting professional before making any decisions.
SMRU #5851352 exp. 9/22/2025