Despite the economic challenges presented by the COVID-19 pandemic, the vast majority of workers continued to contribute to their retirement plans in 2021, according to the Investment Company Institute. All told, Americans have more than $11 trillion stashed in plans offered through their jobs.
But even though workers get a lot of advice and encouragement on their journey to retirement, they are often left on the tarmac when they reach their destination. Historically, employers have provided little guidance on what retirees should do with the big pile of money theyâve accumulated over the past 40 or 50 years.Â
Now, a growing number of companies are providing workers with a way to turn a slice of their savings into a monthly paycheck in retirement. In addition to the usual choices of mutual funds and other investments, theyâre offering workers the option of investing in an annuity that can be converted into guaranteed income after they retire.Â
Retirees can already purchase annuities from a variety of insurance companies, of course, but few do, even though many retirement experts believe that annuitizing a portion of your savings reduces the risk that youâll run out of money in retirement. In large part, thatâs because the security that annuities provide comes with some caveats: In exchange for guaranteed payments, you must hand over a large lump sum to an insurance company, and you usually canât get that money back. In addition, some types of annuities are loaded with fees and restrictions that are often hard to decipher without professional help.
In the past, companies resisted offering annuities in their retirement plans because they feared they would be sued if the insurer went out of business. The 2019 Setting Every Community Up for Retirement Enhancement (SECURE) Act sought to address those concerns by providing employers that offer in-plan annuities a safe harbor from such lawsuits. To avoid liability, employers must still vet annuity providers to ensure that theyâve complied with state laws and have maintained healthy financial reserves.Â
Several companies that have added annuities to their lineups are offering them in their target-date funds. Target-date funds, which are owned by more than half of participants in 401(k) plans, provide a set-it-and-forget-it portfolio that gradually shifts to more-conservative assets as you near retirement.Â
For example, TIAA-CREFâs Secure Income Account, a deferred fixed annuity, replaces a portion of the fixed-income holdings in a target-date fund and accounts for 40% to 60% of the individualâs assets by the time the 401(k) owner retires, says Philip Maffei, managing director for corporate income products for TIAA-CREF. Upon retiring, the participant would have a choice of annuitizing all of the money in the account, annuitizing just a portion of it or taking a lump sum, Maffei says.Â
Fidelity Investments, one of the nationâs largest 401(k) plan managers, is providing its 401(k) clients with a menu of immediate annuities from up to five different insurance companies. The annuities are available to workers age 59½ and older, who will have the option of converting any portion of their savings to an annuity when they retire. Funds that arenât converted can remain invested in the Fidelity plan.Â
Millions of educators already own annuities in 403(b) plans, the retirement accounts typically offered to public school teachers, and a lot of them would give their results a failing grade. Many school districts have turned the job of offering retirement plans over to sales agents who promote high-cost equity-indexed and variable annuities. Teachers who are unhappy with their investments often discover that moving their money to a lower-cost option will trigger hefty surrender fees.
Proponents of annuities in 401(k) plans say workers are offered plenty of protections from those types of problems. Even with the safe harbor provided by the SECURE Act, companies that offer 401(k) plans are required by law to act in the best interest of their employees, which means they must vet their planâs investment options, including annuities.Â
That kind of vetting could also give annuities offered through retirement plans an edge over annuities purchased on the retail market, providers say. âHaving the plan sponsor play the vetting role gives a lot of peace of mind to participants that theyâre getting a good-quality annuity product,â says Keri Dogan, senior vice president of retirement income at Fidelity.
A financial planner can help individuals select annuities available on the open market, but not everyone can afford to hire an adviser, says Jeff Cimini, head of strategy and financial management at Voya Financial, which provides retirement, insurance and investment services. Annuities âare complex, and generally speaking, theyâre sold, not bought,â he says.Â
Employees who buy annuities through their retirement plan may also benefit from institutional pricing, which means theyâll pay lower fees than theyâd pay on the retail market, Dogan says. In addition, the SECURE Act mandates that annuities purchased in a 401(k) plan must be portable, which means employees who change jobs or retire can move their annuity to another plan or IRA without paying surrender charges or fees.
Although lower costs and portability could make annuities offered through retirement plans more appealing, annuities are still complex products. Fees and other expenses arenât as transparent as they are for mutual funds and exchange-traded funds. In addition, annuitiesâincluding those offered in 401(k) plansâcome in a variety of flavors. TIAA-CREFâs Secure Income Account, for example, is a deferred fixed annuity that offers a guaranteed interest rate, which currently ranges from 3.4% to 3.65%, depending on the size of the plan, with the option of converting the balance to guaranteed income after retirement. While Fidelity is currently limiting its offering to immediate annuities, it plans to add a qualified longevity annuity contract (QLAC), an annuity that starts payouts when a participant reaches a specific age, typically 80 or older. (These types of annuities require a smaller outlay of funds than immediate annuities because of the possibility that the owner will die before payments begin.) Some plans are adding variable annuities, which provide some exposure to the stock market before converting to income in retirement.Â
If you decide to add an annuity to your portfolio, youâll also need to decide when (or whether) to annuitizeâthat is, convert it into a guaranteed income stream, a decision thatâs usually irrevocable. Complicating the decision is the current interest rate environment, which could depress the size of your monthly check, depending on when you annuitize an existing investment or purchase one that offers an immediate payout. In the case of immediate annuities, for example, payments are tied to rates for 10-year Treasuries, and while those rates are higher than they were a year ago, âtheyâre very likely to go higher in the future,â says Harold Evensky, a certified financial planner and chairman of Evensky & Katz/Foldes Financial.
While Evensky believes investing a portion of your savings in an immediate annuity can significantly reduce the risk that youâll run out of money in retirement, he says most retirees are better off waiting until at least age 70 to buy an annuity because payouts increase as you age. And if interest rates continue to rise, youâll also benefit from delaying payouts.Â
That means leaving your funds in your 401(k) for years after you retireâsomething many large plans are starting to encourage. Having more assets in their plans gives employers more clout when they negotiate fees and other services with fund managers.Â
Under a provision in the SECURE Act, companies are required to include an illustration in their retirement planâs quarterly or annual statements that estimates the amount of monthly income your balance would provide if you were to convert the funds to an annuity. While these illustrations could raise awareness about the value of annuitizing retirement income, retirement experts say theyâre primarily useful for older workers who have accumulated a significant balance. Without supplemental tools, such as projections of how much additional contributions would add to the balance, younger workers or new plan participants could end up with a âdiscouraging pictureâ of the amount of guaranteed income their savings would buy, the Insured Retirement Institute, a trade association, wrote in a comment letter to the Department of Labor.Â
Annuity providers are hopeful that the DOL will allow plans to include future contributions, company matches and investment returns in the income estimates. Participants in the Thrift Savings Plan, the federal governmentâs version of a 401(k) plan, already receive those kinds of projections in their plan statements, says Paul Richman, chief government and political affairs officer for the IRI. â
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Immediate Annuities
Retirement plan providers will soon be required to provide employees with an estimate of the amount of monthly income their current 401(k) balance would provide if they were to purchase an annuity that provides payouts immediately. The example below assumes the participant and the participantâs spouse (in the case of a joint life annuity) will be 67 on December 31, 2022.
Current account balance: $125,000
Single life annuity: $645 per month
Joint life annuity: $533 per month for participantâs life; $533 per month for spouse following participantâs death
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learning the LingoÂ
Here are some varieties of annuities that may be offered by your 401(k) plan:Â
Single-premium immediate annuity. Also known simply as an immediate annuity, you typically give an insurance company a lump sum in exchange for monthly payments for the rest of your life or for a specified period.
Deferred fixed annuity. These annuities offer a guaranteed interest rate over a specific period and can be converted into an income stream in retirement. Â
Qualified longevity annuity contract (QLAC). A type of deferred annuity thatâs funded with assets from your IRA or 401(k). You can invest up to 25% of your account (or $145,000, whichever is less) in a QLAC, and the funds will be excluded from the calculation to determine required minimum distributions. When you reach a specified age, which can be as late as 85, the funds will be converted into payments guaranteed to last for the rest of your life. The taxable portion of the money you invested will be taxed when you start receiving income. Â
Variable annuity. A type of deferred annuity that invests in mutual-fund-like subaccounts to create future income (usually in retirement).
This year has been one for the books and if thereâs one lesson that continues to ring true itâs: prepare for the unknown while staying committed to your financial journey. Weâve all had our shares of financial challenges â but itâs possible to overcome financial setbacks. As we wind down and begin to evaluate our
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The heaviest part of earnings season has passed, but there are still plenty of notable names left to report. Among the biggest companies on this week’s earnings calendar are electronics retailer Best Buy (BBY, $70.65), chipmaker Nvidia (NVDA, $163.85) and discount goods chain Dollar General (DG, $189.63).
First-quarter earnings season so far has been solid by just about any measure, says Jeff Buchbinder, equity strategist at independent broker-dealer LPL Financial.Â
An impressive 78% of S&P 500 companies have beat earnings estimates for the quarter, slightly outpacing the long-term average of 77%, Buchbinder says. And 74% of S&P 500 firms reported higher-than-expected revenue â beating the five-year average of 69%, he adds.
“In this inflationary environment, the revenue is coming through,” the strategist says. “But it is profit margins that were the biggest test for corporate America this quarter, and companies passed that test with flying colors. Not only did margins hold up well quarter-over-quarter â falling less than anticipated â but analysts’ estimates for margins going forward still show margin expansion from current levels.”
It has been a heavy stretch for retail earnings, and based on the mixed results from Walmart (WMT) and Target (TGT), it was a tougher quarter than initially expected for many in the industry.
“U.S. retailers Target and Walmart presented a grim outlook at their earnings calls,” says the BCA Research Daily Insights team. “Although Q1 topline growth surprised to the upside, lingering pandemic supply-chain issues as well as higher freight, fuel and labor costs weighed down on both companies’ profits.”
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Wall Street will get a closer look at the group this week, with a number of retailers set to report. Among them is electronics retailer Best Buy, slated to unveil its first-quarter results ahead of Tuesday’s open.Â
“We see more downside than upside risk due to rising inflation and interest rates, affordability issues for key products, the Ukraine war further weighing on consumer confidence, and additional supply-chain issues in China,” says Wedbush analyst Seth Basham (Neutral).Â
And these pressures, as well as tough stimulus-related year-over-year comparisons, led to a sharp drop in store traffic trends in March, he adds.
For BBY’s first-quarter, analysts, on average, are anticipating a 26.9% year-over-year (YoY) drop in earnings to $1.63 per share. Revenue is expected to arrive at $10.4 billion (-10.3% YoY).
Nvidia has a strong history of beating Wall Street’s estimates on both the top and bottom line. But Susquehanna Financial Group analyst Christopher Rolland (Positive) thinks the semiconductor stock is in for a tougher time when it reports its Q1 results after Wednesday’s close.Â
“Unlike recent quarters, we believe any significant beat and raise may be capped by gaming headwinds,” Rolland says.Â
In addition to noteworthy price drops for Nvidia cards over the last year, “we have also witnessed a significant restocking, with all major card families now available at retailers. We believe the ‘reopening’ is the biggest driver of these changes and presents a potential intermediate-term narrative risk going into the quarter,” he adds.
However, Rolland believes weakness in this segment could be offset by strength for data center, which has become even larger than NVDA’s gaming segment. “Healthy underlying demand for NVIDIAâs products is being driven by hyperscale cloud computing, AI workloads, natural language processing, deep recommender models and vertical Enterprise products,” he says.
Rolland is expecting NVDA to report earnings of $1.30 per share and revenue of $8.1 billion in its first quarter. This compares to consensus estimates for earnings per share of $1.29 (+41.6% YoY) and revenue of $8.1 billion (+43.4% YoY).
Dollar General is another retailer that will report earnings this week, with first-quarter results from the discount chain expected out ahead of the May 26 open.
DG stock sold off sharply last week as negative reactions to several retail earnings sparked a sector-wide swoon. Shares of the retail stock are now down around 20% for the year-to-date and have shed almost 27% since hitting a record high near $260 in late April.
What can we expect from Dollar General’s Q1 report?
“We believe some of the headwinds highlighted by other players last week also have negative ramifications for DG including increasing cost pressures â fuel and LIFO [last in, first out;Â a method used to measure inventory] â and mix shifts,” says Oppenheimer analyst Rupesh Parikh (Outperform).Â
And while management addressed some of these headwinds in mid-March, “we believe weather and even stronger cost pressures on the food and transportation fronts suggest incremental risk vs. prior guidance,” Parikh adds. Still, the analyst says he “would buy any dips from here.”
Consensus estimates are for Dollar General to report earnings of $2.33 per share (-17.4% YoY) in its first quarter on revenue of $8.7 billion (+3.6% YoY).
An interview with the chief global strategist at J.P. Morgan Asset Management.
Whatâs your stock market outlook for the second half? Itâs a particularly challenging year, but Iâm reasonably optimistic. The major concerns this year have been about inflation, the Federal Reserve raising rates very rapidly and the possibility of recession. We donât know about geopolitical events, whether in Ukraine or other situations that will flare up. But I think economic growth can moderate without going into recession, I think inflation can moderate, and I think the Federal Reserve will cool its tone. That should make it a reasonably positive second half for U.S. stocks.
Whatâs your forecast for the economy and inflation? By the fourth quarter, I expect economic growth, adjusted for inflation, of less than 2.5% year-over-year; by the fourth quarter of next year, less than 2.0%. So I think the economy will grow, but at a much slower pace. On inflation, we expect the consumer price index to be back to 4.3% by the end of this year, 3.5% by the end of next year. Why do I think inflation is going to come down? Because there really is such a thing as transitory inflation. It was caused by the pandemic and the policy response. The pandemic is fading, and supply chains will improve. A lot of the money poured into the economy in terms of fiscal stimulus over the past two years is drying up. That money pushed up demand for a lot of goods. With less demand, inflation will naturally fade.Â
Why are you convinced weâll skirt a recession? Despite the two extraordinary recessions weâve seen since the start of the centuryâthe pandemic recession and the great financial crisisâI think the volatility of GDP has fallen. Itâs quite difficult to get a normal recession going. Thereâs a huge excess demand for labor, and that momentum will keep the economy out of recession. The unemployment rate will drift down to 3.3% by the fourth quarter of this year, which will be the lowest in 70 years, and to about 3.1% by the fourth quarter of next year.
Are U.S. corporate profits in good shape? It is tougher for corporations in general. It looks like operating earnings will be up about 7% to 8% in the first quarter compared to the same period last year. Thatâs representative of what weâll see this year. We saw huge gains in earnings last year. Profits are extremely high, but itâs very hard to grow them from here. And companies are facing pressures. A rising dollar hurts the value of overseas earnings. Also, youâve got rising wage costs, rising interest costs. So earnings overall will be growing more slowly. But within the market there are stocks that are cheap relative to earnings and others that are expensive. Looking at valuations is going to be much more important in the second half of this year and beyond. Investors will be a little more parsimonious about what they buy. But within the market there are plenty of opportunities.
How should investors position their portfolios? The first thing investors should do is look in the mirror. We had huge gains over the past three years. If you didnât rebalance, the good news is that youâve got a lot more money. The bad news is that youâre heavily overweight in large-cap growth stocks. Is that where you want to be? People have to look at how the environment has changed and make sure their portfolios are aligned appropriately in terms of risk and expected return. How much risk do you want to take?
In terms of where the opportunities are, valuations give you the answer. Value-priced stocks in general are selling at a steep discount to growth-oriented stocks. Over the past 25 years, the price-earnings ratio on value stocks has averaged 72% of that on growth stocks. Now itâs averaging 60%. People have been piling into mega-cap growth stocks. But the more sober world of 2022 and possibly 2023 will cause those valuation gaps to narrow. Similarly, international stocks in general have rarely looked as cheap as they do today compared with U.S. stocks. A lot of people are very underweight in international stocksâthis is a good time to load up. You can get double the dividend yield you can get in the U.S., and youâre buying at much better valuations.
When you talk about international investing, where do you mean? Both Europe and China. Europe is cheap. Itâs threatened by whatâs going on in Ukraine and by high energy prices that will slow the European economy. But one silver lining to the very dark cloud of Ukraine is that it has pulled Europe together. The pandemic helped pull Europe together also. Weâre seeing more common fiscal policies. In the end, Europe will get through its energy problems and get back on a path of moderate growth. European stocks are so cheap that thereâs a big opportunity there. The worldâs value play is European stocks. China is a different situation. China has taken a huge hit. There will be a bumpy year as China gets through its COVID vulnerability. But financial assets are long term, and China has got a lot of growth potential. Chinese stocks look very cheap relative to the rest of the world.Â
What other pockets of opportunity do you see? Small-cap stocks could do well. They tend to do well when the economy is bouncing out of recession and do poorly when itâs threatened by recession, but I think we can avoid a recession here. Again, small-cap value looks cheap relative to small-cap growth.
What about inflation hedgesâstill a good strategy? The inflation threat may be receding a bit, but some exposure to commodities and parts of the real estate market is okay. And equities overall are an inflation hedge relative to fixed income or cash. A lot of people are tempted to buy Treasury inflation-protected securities. But the yield on 10-year TIPS is negative in inflation-adjusted terms. Basically, you give the government money for 10 years, and at the end theyâll give you less purchasing powerânot a great deal.
Whatâs ahead for fixed-income investors? People can feel more comfortable investing in fixed income than they could at the start of the year. Then, we had a 10-year Treasury yield of 1.5%; now, weâre closer to 3%. That gives you a better stream of income. And the Federal reserve is going to turn less hawkish over the next few months, reducing the risk of a big sell-off in bonds. I would still underweight fixed income relative to stocks, but Iâd only have a slight underweight rather than a significant underweight, which is what Iâd have had at the start of 2022.
Anything to add? I would emphasize to investors to think carefully about the actual value of the company or the assets youâre buying. Weâve had years in which meme stocks have done well, cryptocurrencies have done well. Thereâs a lot of excitement in these spaces. But in the end, thereâs a lot of smoke and mirrors in the crypto space. To be honest, I think itâs mostly nonsense. Itâs important for people to invest in companies that have a real product, a real good, a real service, a real cash flow being generated. Thatâs how you build a portfolio for the long run. The last few years have been great for fads. I donât think the next few years will be.
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Bear markets are an inevitable if particularly unpleasant part of the market cycle. But investors who hold the best stocks to buy for bear markets can mitigate at least some of the damage.
No, the S&P 500 isn’t in a bear market â a 20% decline from its peak â just yet. It has, however, been flirting with one for some time. The Nasdaq Composite, for its part, fell into a bear market a while ago.Â
Either way, 2022 has been a dismal year for equities with no clear end in sight. Bottoms are hard to call in real time anyway, and, besides, stocks can trade sideways for as long as they feel like it.Â
And so if this is how things are going to continue, investors might want to arm themselves with the best stocks they can find. And right now, those stock picks should focus on resiliency during deep downturns.
The best bear market stocks tend to be found in defensive sectors, such as consumer staples, utilities, healthcare and even some real estate equities. Furthermore, companies with long histories of dividend growth can offer ballast when seemingly everything is selling off. And, of course, low-volatility stocks with relatively low correlations to the broader market often hold up better in down markets.
To find the best stocks to buy for bear markets, we screened the S&P 500 for stocks with the highest conviction consensus Buy recommendations from Wall Street industry analysts. We further limited ourselves to low-volatility stocks that reside in defensive sectors and offer reliable and rising dividends. Lastly, we eliminated any name that was underperforming the broader market during the current downturn.
That process left us the following 10 picks as our top candidates for the best stocks to buy for a bear market.
Share prices, price targets, analysts’ recommendations and other market data are as of May 17, courtesy of S&P Global Market Intelligence and YCharts, unless otherwise noted. Stocks are listed by conviction of analysts’ Buy calls, from weakest to strongest.
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