For those who padded their nest egg with high-tech shares, the dot-com crash was especially terrifying. Now, many aging investors are shying away from high-risk stocks in favor of smaller, more predictable returns. "Just as the '90s was the decade of equities, the next one is likely to be the decade of seeking protection," says Charles N. Bralver, vice-chairman of Oliver, Wyman & Co., a financial industry consultancy.
Increasingly, security-minded investors will be able to turn to more than just plain-vanilla bonds or bond funds. Wall Street's chemists have been busy cooking up a new batch of investments designed to deliver returns that may be more modest, but that are more predictable and less volatile. In some instances, they'll even offer the possibility of big, equity-like gains with little or no risk to the principal.
The first products are starting to hit the market. American Skandia Life Assurance Corp., one of the nation's largest financial service providers, is introducing the Guaranteed Return Option. It's a variable annuity vehicle that lets holders chase growth in the equity markets while knowing that their principal is guaranteed after seven years. It works by investing an amount equivalent to the principal in fixed-income investments, such as bonds and certificates of deposit, while the balance is put into stocks and other, more aggressive vehicles with greater growth potential. And ING Group recently launched its second Pilgrim Principal Protection Fund, a so-called closed-end mutual fund. Like a stock, it trades on the exchange and can be bought and sold through a brokerage. But it guarantees the original principal at the end of five years.
Experts believe that these offerings only scratch the surface of the products Wall Street's engineers will devise in coming years. How about a derivative that offers "overlay" of insurance across your entire investment portfolio? This might be just the salve for baby-boomer investors burned by the dot-com crash but still hoping for a comfortable retirement.
By Dean Foust in Atlanta
Get BusinessWeek directly on your desktop with our RSS feeds.
Add BusinessWeek news to your Web site with our headline feed.
Click to buy an e-print or reprint of a BusinessWeek or BusinessWeek Online story or video.
To subscribe online to BusinessWeek magazine, please click here.
Copyright 2002 , by The McGraw-Hill Companies Inc. All rights reserved.
Printer-Friendly Version
