Broker Check

Risk Management Choices for your Equity Allocation

| September 30, 2020

Retirees often must have some allocation to equity to offset future purchasing-power decrease during a long retirement

Potentially wrong-headed "conventional wisdom" might suggest having a 100% Fixed portfolio in retirement. Or a very low allocation such as the L Income Fund for Federal Employees. But it is not always a good idea. Everyone's situation is different. There are probably more moving parts than we wish. If you happen to have a pension that includes a COLA to offset purchasing power decrease due to inflation AND your spouse inherits it all at your possible death first, and the pension covers living expenses (whew!) then you might be OK with a smaller equity allocation.

So the next question is, where to put it? (the equity allocation.) Some selected choices:

S & P 500 Index Fund: Lowest expenses so potentially the highest potential upside. No downside protection so potentially destructive downside. Transparent so easy to understand.

Simple Trend-following fund. Pacer PTLC Large Cap ETF. "In" when the 200 day moving average is favorable. "Out" when it is unfavorable. "50% - 50%" when it is mixed. So trying to offset some of the potential downside of a pure index fund.

Tactical Growth Fund using quantitative algorithms - Howard Capital HCMGX. Designed to protect against catastrophic loss while still capturing a lot of upside. So far so good but Past Performance is not a guarantee of future results!

Jackson Advisory II Perspective VA currently provides ability to have a sub-account 100% in an S & P 500 Index. Contractual guarantee of income from the Income Base which periodically locks in gains but losses are ignored for the purpose of calculating guaranteed (joint) lifetime income. Much more expensive than the above choices but the only choice with a guarantee against loss on the Income Base.

Based on each individual's situation, you might use 1, 2, 3 or all 4 of these choices for some or all of your equity allocation .... or .... something else entirely.

Advantages & Disadvantages of selected all-stock choices










All stock index fund


Largest upside potential

Very low expenses

Transparent & understandable


Largest loss potential





Simple Trend Algorithm


Potential loss reduction - move to full or partial cash when moving average drops

Transparent & understandable


Potentially miss some upside growth during high volatility

A bit more expensive than pure index fund




Quantitative Active Management

 Potentially lock in more gains by moving in and out of cash based on quantitative algorithm(s.)


More expensive

Past results do not guarantee future performance




Index investing with contractual loss guarantee


Contractual guarantee against loss of "Income Base"

So future income can not be reduced as long as no other withdrawals are made.


Most expensive

So upside will always be less than same index due to much higher expenses.

Investing in ETFs and mutual funds is subject to risk and potential loss of principal. There is no assurance or certainty that any investment or strategy will be successful in meeting its objectives. Investors should consider the investment objectives, risks and charges, and expenses of the fund carefully before investing. The prospectus contains this and other important information about the fund. 

Index annuities are insurance contracts that, depending on the contract, may offer a guaranteed annual interest rate and some participation growth, if any, of a stock market index.  Such contracts have substantial variation in terms, costs of guarantees and features and may cap participation or returns in significant ways.  Any guarantees offered are backed by the financial strength of the insurance company, not an outside entity.  Investors are cautioned to carefully review an index annuity for its features, costs, risks and how the variables are calculated.

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