It’s Ugly Out There: A Few Ideas For You

As I’m writing this the S&P 500 is down 2.80%, Nasdaq is down 3.61%, and potentially most importantly – the 10 year Treasury has marched up to 3.33%. It’s the highest the 10 year Treasury has been since 2011. Not a great look for the fixed income market when stocks are hemorrhaging.  

The last several days I’ve had multiple advisory firms reach out asking what pieces I have regarding the relationship between bond prices and interest rates. I have two that I like, so thought I’d share. Hopefully it will help you with your story and messaging in regards to positioning annuities right now. There is a lot of opportunity to educate right now.

First, Wade D. Pfau, Ph.D.,CFA wrote a dynamite piece for Lincoln, “The Heightened Risks of Bonds for Near Retirees”

He did an excellent job explaining the risks of rising interest rates for bonds, why they can be problematic for near retirees and retirees, and how annuities can provide stability during this type of environment. Timely. 

On page 2, there is a nice chart explaining rising rates and bond prices:

Second, Roger Ibbotson’s piece “Fixed Indexed Annuities: Consider the Alternative”. In this piece Roger points out that during both below and above average bond return environments, a FIA can be an “attractive alternative to traditional fixed income options”. One of my favorite charts from his piece below:

Hope these help with your business. 

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A fixed annuity is intended for retirement or other long-term needs. It is intended for a person who has sufficient cash or other liquid assets for living expenses and other unexpected emergencies, such as medical expenses. A fixed annuity is not a registered security or stock market investment and does not directly participate in any stock or equity investments or index.

Indexed annuities are insurance contracts that, depending on the contract, may offer a guaranteed annual interest rate and some participation growth, if any, of a stock market index. Such contracts have substantial variation in terms, costs of guarantees and features and may cap participation or returns in significant ways. Any guarantees offered are backed by the financial strength of the insurance company, not an outside entity. Investors are cautioned to carefully review an indexed annuity for its features, costs, risks, and how the variables are calculated.