The FTSE-100 has started the year in spectacular fashion - spectacularly bad that is. Already 2008 has seen the worst one day fall since 9/11 with the FTSE losing 5.5% on 21st January.
Stock markets around the world are falling on fears of a US recession. Of course it may all be a blip and stock markets will recover in the long-run.
That however is no comfort for many people. Those clients who are close to retirement and relying on the stock market to deliver growth in pension savings cannot afford a year of volatility and sliding stock markets.
Savers who have to take their annuity at a particular point this year will be vulnerable to market conditions and will then have to live with that for the rest of their lives.
Stock market volatility is a major threat to retirement savings and analysis of Lipper statistics by MetLife shows it is nothing new.
The FTSE ended 2007 at 6,456.9 compared with its all-time high of 6,930.2 achieved at the end of December 1999. In the past ten years it has risen just 25.7%.
However, closer analysis shows that in three of the past ten years it has fallen - in 2000, 2001 and 2002 - while in other years it has produced strong returns including 17.8% in 1999 and 16.7 per cent in 2005.
It is clear that market volatility is set to continue in 2008 and that usually makes clients nervous about equities. Advisers will know that investors who stay out of equities run the risk of missing out on any potential rebound.
Analysis shows that someone who had invested in the FTSE All-share for the past 15 years would have enjoyed annualised returns of 10.6% if they'd stayed fully invested. If however, they'd missed the best ten days in any of those years the annualised return would have dropped to 7.4%.
This makes the case for the use of guarantees and regular lock-in facilities in pension products. Guarantees ensure that investors always receive back at least the amount invested while lock-in facilities mean that they can benefit from the strong years in stock markets.
They are an excellent compromise between giving exposure to equities which usually provides the best returns in the long-term while offering the safety net that investors look for in other asset classes.
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