Don’t Be Caught Unprepared for a Potential Market Correction

No one can deny that markets fluctuate routinely. Throughout my 36-year career, the markets have been good at times and poor-performing at times.

I have always taught the concept of proper asset allocation, buy-and-hold for long-term monies, and secure guaranteed income for a portion of your retirement income. Recently, we have been on a significant rise in equity markets.One of my most valuable learnings from my career can be summed up in the following statement:

"No one knows how much risk to take until they have taken too much."

Unfortunately, most Americans don’t find out that they have taken too much risk until there is a major pull back in the markets or investments they hold. Each time we have a “bubble,”

Mike McGlothlin, CFP, CLU, ChFC®, LUTCF®, NSSA®  Executive Vice President of Retirement  Ash Brokerage

“great bull run” or “long-term economic growth” we find there is an ending – a correction or even a full bear market. But we never protect the growth that we have earned by taking the risks in the portfolio.

As of Nov. 14, 2025, the last five years have returned a total return of 87.93% in the S&P 500 (Source: SPX return via yahoo.com/finance). It’s estimated that the S&P 500, which represents 500 companies, now has a total market capitalization of $59.9 trillion (Source: 11.9.25, Spglobal.com, Voronoi.com). While this growth has been impressive, the largest 50 companies make up approximately 63% ($39 trillion) of the overall market capitalization of the S&P 500, causing some lack of diversification over the last five years.

Can your clients weather a 20% downturn?

When we look at down markets, most economists define a bear market when the market drops 20% or more and remains at lower levels for at least two months. With $59.9 trillion of assets in play, a 20% downturn in the S&P 500 would equate to a loss of $11.98 trillion. Many times, these falls happen in a short period of time and start by an economic indicator, unforeseen world event, or something out of an investor’s control.

To put the value of the market at risk in perspective, consider the size of the transfer income tax on qualified funds in the United States. We all hate paying tax and feel we pay too much. Today, the United States holds approximately 34% of its household net worth in qualified accounts representing $44 trillion in assets.

The Federal Income Tax to transfer those accounts from one generation to the next is approximately $11 trillion (assumes a 25% tax bracket), the same potential loss to our net worths due to a market downturn. We try and pull a lot of legal levers to minimize our tax. But why don’t we pull any levers to minimize potential risks?

Illustratively, if you put $1 bills end-to-end, $11 trillion would stretch from the earth to just past Saturn in our solar system. That is how large our decisions around risk, protection, income and retirement are to Americans. 11,400 Americans will be reaching the age of 65 in 2026, and each have important decisions on risk to make.

Why aren’t investors proactive in safeguarding these gains?

We always look back and see “signs that this was coming.” Today, many of those same signs are beginning to show up in data:

• The Schiller CAPE index is above 40 (Source: This Famous Method of Valuing Stocks in Point Toward Some Rough Years Ahead, WSJ, 11.11.25)
• SOFR is forecasted to drop as much as 40.6bps in November 2025 and 21.8bps in December 2025 (Source: The Economy Forecast Agency, 11.14.25)
• The VIX has increased to 22.44 (Source: 11.14.25, CBOE VIX)
• Consumer sentiment has seen a cumulative decline of 19% over the past 90 days to the second-lowest level since 1978 (Source: University of Michigan, Strata-gee.com, 11.11.25)

All these data points have historically indicated a correction, or bear market, or lower returns in equity markets in the coming years. However, we continue to ignore the signs and think this time will be different. Or, maybe, it’s the fear of missing out on some of the unrealized growth left in the markets.

Regardless, it is hard to ignore the fact that the Schiller CAPE ratio is just over 40. This represents near all-time high levels. Post this peak, corrections occurred in 1999-2002 and post-pandemic 2022. The fact the SOFR index fell 30bps might indicate the need for more liquidity in the financial markets, which could become a greater concern. With consumer sentiment nose-diving and the VIX, known as the fear index, increasing, economic conditions do not seem to support continued growth at the same pace we have seen over the last five years.

I continue to hear reasons why advisors don’t take action, including they do regular reviews with clients. They maintain that their clients are educated on the fluctuations in the markets, they have properly allocated and diversified their risks, etc. All great practice management techniques, but none of the above protect the client from the loss of net worth in the event of a correction or bear market.

"We are prone to repeat our mistakes like we have done in 2000 with the dot.com bubble, the financial crisis of 2008-2009, and the pandemic of 2020."

Leveraging the insurance industry to shift the risk

So, how do we protect the $11-12 trillion that might be at risk during a market correction? One of the best ways is to leverage the insurance industry and shift the risk to an annuity. Insurance carriers have created products with returns linked to an external index. These annuities provide the safety and security of the insurance company’s guarantee not to lose any principal, assuming the contract is held to maturity with withdrawals inside of the allowable provisions. This allows the client to sweep gains or a portion of their portfolio to the annuity while still being linked to an equity-based index.

Clearly, the account holder will not participate in all the upside gains like with a traditional investment; however, if (or when) the market does pull back, that amount in the contract will not go backwards. By completing this transaction, the client is placed in a position to withstand a major correction without risking their larger net worth position.

If the client has qualified funds, this transaction can be done through a tax-free rollover (remember the 12-month limit on rollovers) or a direct transfer from one IRA to another IRA (unlimited direct transfers). If the funds are in a nonqualified annuity, a tax-free 1035 exchange allows for the sweep of a portion of the account to the new contract which would preserve the principal in the new contract. There are multiple ways to address this current, inflated risk in the markets without creating a taxable event like selling the investment.

"The important learning from the past is to be in front of the correction to protect against potential loss."

How can that transaction be all that bad for the client?

Annuities in a portfolio can be used to:

• Reduce bond fluctuations in the fixed portion of the portfolio
• Sweep gains off the table and still have interest credited to an index
• Potentially boost fixed returns in a lower interest rate environment by being linked to an index with no market risk to principal
• Leverage the power of tax deferral and increase the real returns annually
• Provide guaranteed lifetime income when it is needed
• Create freed-up capital to increase assets under management and more liquidity

Now is the time to re-think the use of annuities. Our clients don’t deserve to repeat the same mistakes of previous generations and former financial professionals.

"Instead, Americans need financial professionals to be proactive, progressive and pragmatic."

Where do we go from here?

Demographics have been changing for the last 25 years. We are currently in a massive shift from employment to enjoyment which requires a preservation of accumulated assets that can be activated for income in the near future.

If you have clients in need of guaranteed income, your Ash team can help. In addition to the resources on our website, our team is available to review current annuities, assist in 1035 exchanges and explain the different solutions available.