Why is diversification important when selecting annuities?

Diversification is a fundamental investment strategy that helps to manage risk, and its importance is clearly reflected in its connection to protecting against market volatility. When selecting annuities, utilizing a diversified approach means spreading investments across various types of annuities or combining them with other investment vehicles. This strategy mitigates the impact of any single investment's poor performance on the overall portfolio.

By diversifying, an investor can reduce the risks associated with market fluctuations. For instance, different types of annuities (fixed, variable, indexed) react differently to market conditions. A fixed annuity may provide stable returns, while a variable annuity might offer growth potential aligned with market indices. When one segment of the portfolio experiences a downturn, other segments can provide stability or growth, thus safeguarding the investor's overall financial health.

In this context, focusing on diversification enables investors to cushion their portfolios from the full brunt of market volatility, fostering a more balanced and resilient investment strategy that can withstand various economic conditions.