You should all know by now that I’m one of the few annuity proponents that has always said that you need stocks to achieve growth. No matter your risk tolerance it has always been more appropriate to compare annuities to other safe allocations and I’ve mostly picked on bonds because of the risk associated with price volatility. Fluctuation in values in addition to market risk fail to offer the safety needed for true consistency for withdrawals along with the growth needed to pay for retirement.
I started talking about this in 2015 as interest rates approached historic lows. Increasing rates from then until the recent top at the end of 2018 proved me right. Over three or four years, many bonds and bond funds lost as much at 15% of their value. But things turned around and started to settle again. Rates dropped through 2019 and news of a bond rally accompanied the continued bull market in stocks. What bonds lost from 2015 was gained back so if you stuck with it you’re about even, plus the coupon payments, of course.
Recent volatility created a rush to US Treasuries and the associated demand dropped interest rates to nearly unthinkable levels. It created an even greater rally in bonds and provided growth that slightly offsets losses on the equities portion of a portfolio. If you had it right then your total portfolio will be down far less than if you were in 100% equities.
Clients of mine who did this years ago avoided the ups and downs. Stock and mutual fund holdings provided excellent growth and annuities as a bond replacement yielded well without the volatility, providing for a more stable increase. If that’s not what you’re looking for then I’m sorry for wasting your time.
For those interested, consider the type of opportunity this presents now. Bond holders have done well but what happens when things turn around. We will get through this and rates will climb, maybe not to hyper-inflation levels right away but even going back to levels seen three months ago would create losses on those supposedly safe assets. If things stay the same for a little longer there’s going to be little value in the interest earnings from other safe assets.
Now is the perfect time to take gains from bonds and bond funds to stabilize your portfolio and what better way than with a safe asset that will give healthy returns along with a market recovery. It presents a strategic opportunity to take advantage of recent volatility. Rather than sitting around and pining about what could have been, recognize that you have the chance to be on the winning side of this trade. Getting into an index annuity at the bottom of the market and following it back up is an added bonus.
Don’t sell your stocks, sell your bonds. Every wholesaler who wants me to sell annuities keeps reminding me that rates are dropping and suggests I put pressure on people to lock in rates now. While that may be true, none of them give me a true justification as to why it’s important.
Call me or make an appointment below if you’re ready to take advantage…