Buffer Assets: A Term You Need to Know in 2023

This may be the first time you’re hearing the term Buffer Asset because up until recent market shifts, they weren’t really needed.

So, what is it? In short, it’s a type of investment unaffected by the downside of market performance.

It’s an asset with cash value to use as a buffer while your other investments recover from a down market.

Using a buffer asset rather than touching your nest egg is a smart way to offset any economic downturns, and have cash available within your portfolio.

In fact, studies show that millionaires may have, on average, about 25% of their wealth in cash equivalents held as buffer assets. Why??

Because buffer assets can be used for income when your other assets aren’t earning - and we all know that feeling right now.

Investing involves risk, and the past few years have surely proven that.

We know nearly all investors are feeling the strain of today’s protracted down market conditions.?

Those who are approaching retirement age or who have just retired are experiencing the most negative outcomes in this environment.?

Again, you may be asking, “Why?”

Because their portfolios are down, and drawing from a portfolio when it’s down is a big NO-NO.

People tend to save for retirement with a simple expectation: Their nest egg is large enough to earn money for their lifestyle, meaning they don’t have to earn money anymore.

Think of it this way:

• Their retirement account may have earned an average 12% a year while they worked.
• So, why not think they’ll keep hitting that average into retirement?
• Because they won’t. The market does not return 12% every year.?

Your average over your working years may be 12%, but averages don’t matter in retirement.

In fact, I always say the most dangerous thing you can do is bet on averages. The reality of investing involves a sequence of returns risk.

What do I mean by that? Here's an example:

• A recent retiree’s average portfolio return over their 40-year career could have been 13% - strong right?
• The 40-year sequence of those returns fluctuated from bull to bear, bull to bear - averaging out at 13%. Awesome.
• It only takes one bear year in retirement to wipe out your retirement account’s earning power.?

You cannot draw from an account when it is down without severely, irreparably affecting your future income.??

Using a Buffer Asset for income is among the simplest things you can do; but you need to set yourself up before you enter retirement.

With the right strategies, you can mitigate the risk of bear markets in retirement, and give yourself the option of holding assets and allowing them to recover.

At Enhanced Funding Solutions, we help our clients ensure financial stability regardless of the market trend - through retirement and beyond - with Buffer Assets like Premium Financed Life Insurance.?

If you have any questions, feel free to email me at jeff@enhancedfunding.com or call 773-318-9608.