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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)
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.”
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.
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.
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.
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.
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.
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.
Currently, we have record levels of capital backing our claims-paying ability.
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.
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.
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.
The information provided herein is as of August 10, 2011.
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.