Bond Bubble 2013
Many investors are concerned about the economy, market volatility, and stock market risk. This is still prevalent after the DJIA and S&P have had solid returns the last couple years. Many have been encouraged by advisors to turn to bonds as an alternative to Stock and Real Estate bubbles over the last decade. However, are bonds the next bubble set to burst? With interest rates at historical lows and the central bank printing money, some feel the bond market could be in for some dramatic struggles over the coming years. The main debate seems to be: will the bottom fall out this year, 2014, or 2015?
How will this effect annuities and potential annuity clients? Two ways:
1. Some annuities can offer a middle ground. Fixed and Indexed Annuities can offer Safety from the volatility and risk in the stock and real estate markets. However, should inflation or interest rates rise, they will also be protected from interest rate risk much better than individual bonds or the bond market.
2. While annuities will be a safe haven for the individual investor, a rising interest rate environment will put pressure on insurance companies because many have invested in bonds themselves. So, companies that are too conservative and tied into long term bonds ill be out-priced. And companies that have been too aggressive will be in worse shape.
So as an investor, make sure you have a good idea of how the insurer is investing. Or make sure your advisor has done his research and has a thorough understanding of the underlying investment portfolio of the Insurance Company. The last thing you want is to wake up and realize your safe money allocation was in the hands of an overly aggressive insurer.