What Does This Article Cover? What can you do to weather a volatile market and help keep your investments afloat? What strategies can help you limit risk while offering the potential of higher returns? Can you invest in the market while protecting yourself and your family?

With the bullish stock market of the 1990s, it was relatively easy for both seasoned and novice investors to see a profit. But, as history has proven time and again, "what goes up, must come down." As we've learned, at any time the upward market trend can reverse itself. And, it does fairly regularly. In fact, the stock market averages one down year out of every four years. In other words, roughly every five years, there's a 20% market correction^1,2. As an investor, what can you do to weather the volatile market and help keep your investments afloat?
¹Past performance is not indicative of future results
²www.aiminvestments.com/education/0,1020,-1_4871,00.html

Focus on Long-Term Results
Most experts will tell you that if you are investing for the long run — for retirement, for instance, or for a specific financial goal — it's better to let your money go along for the roller coaster ride. That's because the stock market rises over the long run, even as it experiences periods of sharp decline. Consider this statistic: over the last 20 years the average annual return for the S&P 500³ (as of 9/30/02) was 13.2%⁴. This should be encouraging information in light of the market's recent volatility.
³The S&P 500 (a registered trademark of Standard & Poor's) is an unmanaged index of common stocks
⁴www.usatoday.com/money,October 9, 2002

If you try to anticipate the market's ups and downs, you run the risk of selling, and then being on the sidelines when the market rallies. Sometimes, even missing a few days can make a huge financial difference. For example, a hypothetical $10,000 investment in large-cap U.S. stocks (represented by the S&P 500 index) over the 10 years ending June 30, 2002 would have earned 14.43% on an annualized basis or $29,509 as a result of remaining fully invested. Missing just the 10 best market days — an average of one day per year — would have cut total earnings by $10,336, and the annualized return by 4.7%⁵. The problem with trying to time the market is that there's no way of knowing when those crucial "best days" will occur — until they have passed.
⁵Standard and Poor's, 2002

The Risk Factor
Even by staying in the market long-term, there is clearly risk involved with investing your money — whether in stocks or in other types of financial products. Knowing what your goals are and what your risk tolerance is can help you choose investments that are right for you and that will make you comfortable enough to ride out any market waves.

There are different types of risk, ranging from capital risk, where you risk losing your invested moneys, to legislative risk, where changes in tax laws may make certain investments less advantageous. And the various types of investment products — cash/cash equivalents, bonds, and stocks — have different types and levels of risk associated with them. It's possible to achieve higher returns from stocks than with bonds than with cash. But higher returns usually necessitate higher levels of risk.

Before investing, it's important to understand the risks involved with the products you're considering and determine if they best fit your level of comfort with risk. In addition, there are a number of strategies that can help you limit risk while offering the potential of higher returns.

Diversification
"Diversification" means investing in a variety of investments — as in, "don't put all your eggs in one basket." You can do this by spreading your investment money across several asset types, or by diversifying within a specific asset category.

For example, by investing in various types of stocks, you reap the benefits when one or more type is doing well, while limiting the potential for harm when one type does poorly. If you invest in technology stocks, for instance, you should also invest in some less risky stocks in another sector that can balance them out.

Investing in mutual funds may be a good idea, too, because diversification is often already built in. Depending on the fund, moneys may be invested in a wide range of stocks. You simply choose a fund that is suitable for you and meets your risk comfort level.

Asset Allocation
Asset Allocation allows you to create a customized portfolio consisting of several asset categories (cash, stocks, or bonds) rather than individual securities. As is true within asset categories, changing economic conditions can affect various types of assets differently.

Dollar Cost Averaging
Dollar Cost Averaging means you systematically invest a fixed amount of money at regular time intervals. You don't try to time the market; rather, you invest at regular intervals and hope that by doing so, you'll even out the effects of market volatility. Dollar Cost Averaging does not assure a profit, nor does it protect against loss in a declining market. You must consider your ability to continue investing on a regular basis under all market conditions.

Protect While You Invest
While investing in the market can be a heady and financially rewarding experience, the importance of protecting yourself and your family cannot be overemphasized. As investment markets rise and fall, insurance and annuity products can provide enduring protection for a family and a future. Some insurance and annuity products even allow you to take advantage of market trends while still providing certain guarantees, depending on your investment.

Variable Annuities
In a variable annuity, you allocate a premium among a variety of investment divisions that are managed by professional investment managers. Some variable annuities offer a guaranteed death benefit⁶, which will never be less than the total of the premiums paid, less any withdrawals. Many variable annuity products also offer important risk management features — such as automatic asset reallocation and dollar cost averaging — that may help you weather market upheavals.⁶ And annuity products have the added advantage of growing tax-deferred.^7
6Death benefit payments are dependent on the claims paying ability of the issuing company and do not apply to the investment performance of safety of the underlying investment divisions
⁷You pay taxes only when the money is withdrawn or paid out to you. Of course, withdrawals of earnings are taxable and, if withdrawn before the age of 59^1/2, may also be subject to a 10% tax penalty

Variable Universal Life Insurance
While Variable Universal Life (VUL) insurance's primary purpose is to provide a death benefit, it also offers the ability to take advantage of market trends while protecting your loved ones. Although it is not an investment product per se, your cash value is allocated among a choice of investment options — and that cash value can be borrowed against,⁸ as needed. In addition to a death benefit, VUL gives you choice over risk assumed, flexibility to change investment choices, and the potential for tax-deferred growth. It also offers risk management features such as asset allocation and dollar cost averaging.
⁸The overall amount of insurance coverage may decrease due to withdrawals and any outstanding loan balance

Stick With It
As we have already learned, the market will go down as surely as it goes up. But rather than being completely at its mercy, there are some very real steps you can take to try and weather the market's volatility. Look to the far future instead of to tomorrow or even next year. Diversify. Know what your goals are, what your level of risk tolerance is, and then make sure that you are comfortable with the knowledge that sticking it out may be the best investment strategy. And don't forget to protect while you invest.

Like the weather, there are never any guarantees when it comes to the stock market. Being knowledgeable and prepared — and patient — may be your best bet to coming out ahead.

Please call your NYLIFE Securities Registered Representative for a product and fund prospectus. Investors are asked to consider investment objectives, risks, and charges and expenses of the investment carefully before investing. Both the product prospectus and the underlying fund prospectus contain this and other information about the product and underlying investment options. Please read the prospectuses carefully before investing.

Securities offered through NYLIFE Securities Inc. (Member FINRA/SIPC)

14030(10/04) SMRU 00262268HO(10/04)

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