10.29.07
Risk management
Retirement security is synonomous with risk management. In the October 20th Wall Street Journal article “SIVs Pose Risks for Money Market Funds”, another shoe dropped in the subprime mortgage/credit crunch saga. SIV securities or structured investment vehicles, which big banks were bailing out recently, were also found to be held in one of the ‘safest’ of funds–the money market fund. Not all money market funds were invested in SIVs and the amount that was held would not bust a fund. But some reduction to yield could happen with some funds. A variable annuity product by one insurer held 20% of SIV debt in one of its MMFs. Other fixed income funds by a certain fund management company posted losses from betting on mortgage-backed securities, derivatives, and other “investment exotica.”
The point is, in placing bets with the money of those seeking conservative returns, those wishing to invest conservatively and not lose principal, the financial industry gets a black eye. This is the condition of markets–risk happens. It begs the question though: who do you trust? Who or what groups are the best at risk management? Take the time to become more knowledgable, seeking out reliable, transparent financial custodians. Ask questions.
Lately, there have been more roll outs of financial products that sound annuity-like offering income stream or that try to offer some guarantees similar to fixed income annuities. The product goal is to provide income throughout retirement. Look carefully at how these products are structured and whether there are downsides to their claims, and whether that downside is an acceptable risk. So, the principle would be: how do these products work, what are their investment components, and what is their downside?
