In what scenario do market fluctuations affect segregated funds?

Market fluctuations primarily impact segregated funds when account values are determined by variable investments. This is because segregated funds are often composed of a mix of equities and other investments in the market, whose values can fluctuate based on market conditions. When an investor's account value is tied to these variable investments, any changes in the market will directly influence the performance of the fund, leading to variations in account value that reflect these market changes.

In contrast, choosing fixed payouts means that the returns are predetermined and not affected by market performance, thus insulating the investor from market volatility. Investing solely in bonds generally involves lower volatility compared to equities, leading to a relative stability in account value that is less impacted by typical market fluctuations. When the market is stable, fluctuations are minimal, so account values would not be affected significantly. Therefore, it is the connection to variable investments that most clearly indicates how market fluctuations have an impact on the performance of segregated funds.