Stock Market Volatility FAQs


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For the most recent performance information please visit the Fund Research section of our site.

The questions and answers presented here are updated as market events unfold. Please check back regularly for the most up-to-date information. (8/10/11)

What is our view of today’s volatile market?

According to Chief Investment Officer Ed Grzybowski: “In the near term, we expect the bond market to continue to rally in reaction to a slowing of the U.S. and world economies. Due to the level of market uncertainty, there is a flight to quality [investments] resulting in higher prices for less-volatile products, including corporate bonds and Treasuries. Equity markets are likely to be supported by the high level of corporate earnings, but there is concern about [performance in] the 4th quarter due to slowing [overall] economic growth. There are still good opportunities out there and equities belong in a diversified portfolio.”

Are we entering a second recession?

It’s hard to predict whether we will have a double-dip recession, although we do anticipate a period of slow growth, high unemployment, and low consumer confidence. Regardless of the outcome, we need to take advantage of opportunities that may emerge, according to President and CEO Roger W. Ferguson, Jr.

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What can investors do to help manage market volatility?

We believe it is important for investors to keep a long-term perspective on investing and not overreact to short-term market moves. In other words, they should stay the course. However, if their tolerance for risk has changed—in response to the current environment—they may want to consider modifying their asset allocation strategy, with the assistance of a TIAA-CREF financial consultant.

While the current situation is difficult, we feel that owning a diversified portfolio is the best response to market volatility. By spreading the risk inherent in various asset classes across different types of investments, investors can help mitigate severe declines in any one area of the market. Of course, diversification alone cannot guarantee against market loss (or guarantee market gains), but it can help reduce losses when declines occur in one investment area, but not in others.

Should investors nearing retirement adopt a different approach to market volatility?

We believe that investors at this stage in their lives should still plan for the long term. That is, their investment strategy should factor in a 20- to 30-year retirement and a diversified portfolio that includes exposure to risky assets, such as equities, that can help provide real returns above inflation. If a client’s circumstances or risk tolerance have changed, we recommend discussing the need for potential adjustments with a TIAA-CREF financial consultant.

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Is selling during a downturn a poor strategy?

As many investors learned from the bear market of 2008-2009, selling during a downturn can increase your losses by locking them in, making it harder to achieve long-term goals. For any long-term investment strategy to work, you must be able to stick with it for the long term. If you believe that market volatility may be jeopardizing your financial goals, you may want to consider adjusting your investment mix for a better balance of risk and return. In addition, periodic portfolio rebalancing can help to keep your portfolio aligned with your investment strategy and risk tolerance.

Is TIAA-CREF reconsidering its asset allocation recommendations for client portfolios?

No, not at this time. Our recommendations remain valid because they are based on effective diversification and a long-term investment approach. We and our clients are subject to long market cycles, which reflect the underlying productivity of the economy. We continue to believe that a well-diversified portfolio is the right approach.

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What is the impact of the U.S. debt rating downgrade on TIAA?

The independent ratings agency, Standard & Poor’s (S&P), downgraded the U.S. Sovereign Debt from AAA to AA+ on August 5. We believe that S&P took this action due to the prolonged controversy over raising the statutory debt ceiling and related fiscal policy debate. Consequently, TIAA and four other similarly-rated insurance firms were included in this downgrade. The S&P’s “sovereign ceiling” policy states that no domestic insurance company can have a higher rating than its own sovereign.

TIAA remains among the highest-rated insurance companies in the United States. The action taken by S&P is no reflection on TIAA’s strength, stability, and claims-paying ability. As stated by Roger W. Ferguson, Jr., President and CEO, “We are prepared to meet our financial obligations to annuity policyholders. We have a 93-year history of faithfully meeting these obligations, through many periods of market volatility and various economic changes.” 

TIAA currently holds the highest rating (equivalent to AAA) from three other major rating organizations: Moody’s, Fitch, and A.M. Best.

How does TIAA stand on available capital?

Currently, we have record levels of capital backing our claims-paying ability. 

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How have recent developments affected the TIAA Traditional Annuity?

The TIAA Traditional Annuity is not subject to market risk. It is an insurance product that provides a guaranteed minimum interest rate and has historically provided an additional excess crediting rate. It was specifically designed in 1918 to provide our participants with a source of retirement income that is not dependent on the stock market.

When a participant allocates savings to TIAA Traditional, the principal is guaranteed, as is a minimum rate of interest. Those guarantees are backed by TIAA’s claims- paying ability. TIAA is among the highest-rated insurance companies in the U.S.

The current crediting rate for the TIAA Traditional Retirement Annuity is 4.00%. That rate applies to any contributions or earnings credited to the account during the month of August and will be applied until February 2012, regardless of the performance of the stock or bond markets.

TIAA Traditional provides crediting rates that apply to any contributions or earnings credited during the month premiums are paid, and which typically are in effect for several months. These rates are guaranteed regardless of the performance of the stock or bond markets.

Has the General Account, which supports TIAA Traditional, been adversely impacted by the current market volatility and subsequent ratings downgrade?

We are financially sound due to our exposure to a broad range of asset classes, including alternative assets such as real estate, agricultural land, timber, oil and gas. This breadth of diversification helps us today—as it has in the past—to hedge market risks.

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How are TIAA-CREF’s money market funds faring?

Our money market funds are in a good position and aren’t directly impacted by the credit rating downgrade. However, we expect that yields will remain near zero due to Federal Reserve action to keep short-term rates very low in an effort to stimulate the economy.

What is causing the decline of the U.S. stock market?

  • The downturn in the U.S. stock market is part of a global selloff in stocks.
  • This is happening because economic growth appears to be slowing in many of the world’s largest markets, including the United States and China. Stocks give investors a share in a company’s profits; if growth slows down, a company’s profits may decline and its stock may be worth less in the marketplace.
  • A second reason is concern about the market for government bonds in many European nations, including Italy, Spain, Greece, Ireland and Portugal. Interest rates are rising rapidly in those countries, making it harder for governments to borrow. At the same time, prices of existing bonds are dropping, threatening the financial strength of some European banks.

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How has the stock market decline affected the CREF accounts?

  • Five of the CREF accounts invest entirely or partly in stocks. The Social Choice Account invests in both stocks and bonds.
  • The losses in all five of these accounts have been in line with their respective benchmarks. We have constructed their portfolios so that their performance is not expected to diverge too sharply from that of their benchmarks.

I have money in the TIAA Real Estate Account. Is real estate a safe place for my investments, given the decline of home prices?

  • The TIAA Real Estate Account invests primarily in high-quality commercial real estate in some of the strongest regional markets in the United States. The return from the account comes from several sources: Rental income from, and capital appreciation of, the Account’s properties, and income and appreciation from its other investments. The Account’s properties are valued on a regular basis (generally quarterly), using independent assessments, but they are not revalued every day. As a result, the Account’s daily values generally tend to be less volatile than a stock or bond account.
  • Please note the Account does not directly invest in single-family residential real estate, nor does it currently invest in residential mortgage-backed securities.
  • The Account has a portion of its portfolio (about 5% of net assets) invested in real estate investment trust securities (REITs), which exhibit some of the volatility of equities generally. As of June 30, 2011, the account also had more than 20% of net assets invested in U.S. Treasuries and government agency bonds.
  • Traditionally, U.S. insurance companies have used commercial real estate as a way to preserve capital and generate income.

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Does the market’s decline provide a good buying opportunity?

  • No one can be sure about that, but increased market volatility can also present increased opportunities.
  • It is important to remember that for every stock sold over the last few days of falling stock prices, someone was buying. Those buyers may have a different view of the stock’s future value.
  • One way to look at the market’s decline is that the stocks of major U.S. companies are being sold at a discount of nearly 20% off their prices of just a month or so ago. 

Should I sign up for a full advice session with a TIAA-CREF financial consultant to get help in dealing with the market’s recent drop?

  • For most participants: A full advice session may not be needed if you’ve had one within the past two years and your goals and risk tolerance remain the same. The analysis we provide is designed to help you develop a saving strategy that can help meet your long-term retirement needs. Nonetheless, if your personal circumstances have changed substantially (including a life event), or your retirement goals or your tolerance for risk have changed, you should contact one of our consultants to review your situation.
  • For Wealth Management clients: An advice session is part of your annual review with your Wealth Management Advisor.

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How do I know if I have the right mix of savings and investments?

  • Choosing the right mix of savings and investments for your personal situation depends on several factors: Your personal financial needs, your time horizon – how soon you’ll need the money that you’re investing – and your attitude towards risk.
  • Are you more concerned with preserving the value of your original investment or in producing sizable returns?
  • Are you planning to retire in two years, 20 years or more?
  • If you have accumulated $100,000 in a retirement portfolio, could you tolerate a 5% loss, knowing that would be $5,000? How about 20%, which would be $20,000?
  • We at TIAA-CREF can show you some of the benefits associated with combining tax-deferred investments, broad diversification, and lifetime income options.

I turned 70-1/2 this year and have questions about taking my MDO. What should I do?

  • Individuals who are turning age 70 ½ in 2011 are generally permitted to delay their initial distribution from retirement accounts and IRAs until April 1, 2012. These individuals have the option to wait and see whether the market will recover over the next three to six months.
  • Please note that this option is not currently available to individuals who are in their second or later distribution years. These individuals must take their distribution by December 31 of the current calendar year.
  • We do not recommend trying to time the market and we do not know whether the market will rebound or display less volatility in the short term.
  • Keep in mind that you are not required to liquidate funds in a lump sum to satisfy your annual required minimum distribution. Monthly systematic withdrawals may be an available option, which can spread out market risk, similar to dollar cost averaging.
  • While we do not provide fund-level advice, you may choose to liquidate out of higher-performing funds first, which could possibly alter your overall investment allocation and create a need for rebalancing.

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I feel that the only safe place for my investments is gold. How can I invest in gold with TIAA-CREF?

  • We understand the market volatility that has recurred from time to time over the last three years has caused some investors to turn to gold as a way of preserving the value of their investments.
  • We do not offer direct investments in gold. Indirect investments in gold through exchange-traded funds that have assets backed by gold bullion are available through TIAA-CREF Brokerage Services accounts. This statement is not a recommendation or an offer to buy or sell exchange-traded funds, or any other product or service. This information is provided for informational purposes only.

The information provided herein is as of August 10, 2011.

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The material is for informational purposes only and should not be regarded as investment advice or as a recommendation or an offer to buy or sell any product or service to which this information may relate. Certain products and services may not be available to all entities or persons.

For its stability, claims-paying ability and overall financial strength, TIAA currently holds among the highest ratings from the four leading insurance company rating agencies: A.M. Best (A++ as of 2/11), Fitch (AAA as of 6/11), Moody's Investors Service (Aaa as of 6/11) and Standard & Poor's (AA+ as of 8/11). These ratings are subject to change and do not apply to variable annuities, mutual funds or any other product or service not fully backed by TIAA's claims-paying ability. Per S&P criteria, the downgrade of U.S. long-term government debt limits the highest
rating of U.S. insurers to AA+ (the second-highest rating available).

Guaranteed Lifetime Income is provided by insurance companies and based on their claims-paying ability.

TIAA-CREF products and offerings may be subject to market and other risk factors. See the applicable product literature, prospectus or visit www.tiaa-cref.org for details. TIAA fixed annuities are supported by the General Account portfolio, the investment performance of which supports the annuity’s minimum guaranteed returns, additional amounts and payout obligations. The TIAA General Account is an insurance company account and is not available to investors as an investment. All guarantees are subject to TIAA's claims-paying ability.

 

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