Enhancing Portfolio Diversification with Life Insurance: A Powerful Uncorrelated Asset

Written by: Christine Millen, Principal, Enza Financial

When it comes to portfolio diversification, sophisticated investors are constantly seeking ways to reduce risk and enhance returns.  By incorporating life insurance into a portfolio, investors may find enhanced diversification, which may strengthen overall risk management, and may help achieve a solid foundation for long-term wealth preservation.

Uncorrelated Asset Class:

Traditional investment vehicles, such as stocks and bonds, are typically influenced by market fluctuations. In contrast, certain types of life insurance vehicles may provide uncorrelated returns. When focused on the death benefit and/or cash value return for life insurance solutions such as universal life and no-lapse guarantee universal life, the returns are not correlated directly to market performance.  The cash value of a life insurance policy may grow independently from market performance, making it resistant to the volatility experienced by other investments. Additionally, when focused on the death benefit return of a life insurance policy, the return is based on mortality, not market performance.  These unique characteristics allow life insurance to provide stability and consistency, even during turbulent economic times.

Reducing Systematic Risk:

Systematic risk refers to the risks associated with the overall market, affecting all investments within it. By incorporating life insurance into a portfolio, investors may reduce systematic risk.  The performance of certain life insurance solutions is not directly tied to market conditions. Therefore, even during periods of market downturns, the value of life insurance may remain unaffected, providing a meaningful hedge against systematic risk.

Independent Growth:

For fixed product solutions, life insurance carriers adopt conservative investment strategies, focusing on high-grade fixed income investments typically held until maturity. This approach ensures stable and predictable growth, less susceptible to market volatility. As a result, the cash value of some life insurance policies grows independently, offering consistent returns over time. This independence from market performance may allow investors to diversify their portfolios effectively and reduce their exposure to market fluctuations.

Long-Term Stability:

One of the primary advantages of life insurance as an uncorrelated asset is its long-term stability. A life insurance solution offering a guaranteed death benefit can provide a steady source of value, unaffected by market conditions. This stability is particularly important for investors seeking to balance the volatility of their portfolios with a secure and reliable asset. Life insurance serves as a reliable foundation, contributing to the overall resilience and long-term growth potential of a well-diversified investment strategy.

The information provided in this article is for informational purposes only and should not be considered as financial or investment advice. It is essential to consult with a qualified financial advisor or professional to assess your specific investment goals and objectives.

Securities Offered Through M Holdings Securities, Inc. A Registered Broker/Dealer, Member FINRA/SIPC. Investment Advisory Services Offered Through Enza Financial, LLC.  Insurance offered through Enza Insurance, LLC. Enza Financial, LLC is independently owned and operated. 5728132.1