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Thursday, 28 March 2024 06:22

Annuity Sales in 2023 Reach New Records

Annuity sales in 2023 were up 22% compared to the previous year, reaching $355.4 billion. The biggest contributor to this growth was the independent sales channel, which now accounts for 40.6% of all annuities sold, totaling $156.2 billion. In 2022, independent agents and brokers accounted for 38.7% of sales. They also accounted for 74% of all fixed indexed annuity sales.

The growth in total annuity sales is due to rising interest rates and the large number of Baby Boomers who are entering or nearing retirement. In terms of categories, income annuities saw the largest increase in sales, at 45% for single premium immediate annuities and a 97% increase for deferred income annuities. 

While most categories saw growth, traditional variable annuities were an exception, as sales dropped by 17%. In contrast, registered index-linked annuities displaced some of these sales as the category had a 15% jump in sales. These annuities offer investors downside protection and limited upside and total $47.4 billion in sales in 2023. 

Keith Golembiewski, the head of annuity research at LIMRA, believes that RIAs are a source of future growth for variable annuity sales. These annuities offer upside potential and allow for deferral of taxes, making them ideal for older clients. Currently, RIAs are a small but growing source of annuity sales. 


Finsum: Annuity sales hit new record highs in 2023. Some major reasons are an uncertain economic outlook, Baby Boomers nearing retirement, and high interest rates. 

Robert Mitchnick, Blackrock’s digital asset lead, believes that bitcoin is more like ‘digital gold’ rather than a ‘risk-on’ asset, despite its strong correlation to equities in recent years. Throughout bitcoin’s existence, there has been a constant debate about its true nature. Some argue that bitcoin is like gold given that there is a fixed supply, which means that it should provide protection against inflation. 

While this may be true in theory, in reality, bitcoin has largely moved in the same direction as equities, which undermines the argument that it offers diversification. In 2022, bitcoin tumbled as the world dealt with the highest levels of inflation in decades. Notably, equities were also down 25% in 2022. In the following year, as equity markets made new highs, bitcoin also followed and made new highs as well. 

Despite this relationship, Mitchnik believes that historically, bitcoin has demonstrated very little correlation to stocks. He attributes the recent rally to excitement around the launch of bitcoin ETFs in the US. In terms of allocation, he recommends between 1 and 3% for investors to provide diversification and differentiated returns. The argument about bitcoin’s nature is germane for investors who want to understand whether it will make their portfolio more risky or more diversified. 


Finsum: There are two camps when it comes to bitcoin. One sees bitcoin as an asset that is closely correlated to equities; while the other believes that bitcoin is more like gold and can help diversify portfolios.

In today's interest rate climate, holding a significant cash reserve is a prudent strategy. While long-term investors may benefit from stock investments, individuals requiring immediate access to funds or building emergency savings find value in holding cash. With high-yield savings accounts offering rates of 5% or more, real returns on cash savings are attractive. However, for those seeking to optimize returns while maintaining liquidity, there are two fixed income ETFs that offer advantages. 

Two ETFs, iShares 0-3 Month Treasury Bond ETF (SGOV) and JPMorgan Ultra-Short Municipal Income ETF (JMST), offer different tax strategies to potentially enhance after-tax returns without significant additional risk.

Short-term Treasury bonds provide state tax exemption on interest earnings, making them appealing for residents of high-tax states, while municipal bonds offer federal tax exemption and may also be exempt from state and local taxes. Investors should assess the trade-offs between tax advantages and lower yields to determine the best fit for their financial situation.


Finsum; When accounting for tax advantages, fixed income ETFs could provide a more secure and efficient outlet for mitigating risk. 

Thursday, 28 March 2024 06:18

Who Should Utilize Buffer ETFs

Investors grappling with market uncertainty are exploring ways to manage risk effectively while staying invested; utilizing buffer strategies, which employ options to provide targeted downside protection, offers a solution by mitigating losses during market downturns while limiting upside potential.

 

 Accessing buffer strategies through ETFs simplifies the process, avoiding the complexities of managing options directly or the expense of structured notes. Buffer ETFs, managed by experienced professionals and offering intraday liquidity at a low expense ratio, present an accessible option for investors. 

 

Designed for long-term strategic allocation, these ETFs can be utilized by investors looking to reduce equity drawdown risk, seeking moderate growth, or exploring outcome-oriented strategies within their portfolios, thereby providing a flexible approach to risk management in uncertain markets.


Finsum: Buffer strategies seem to make the most sense when there is overall upside but potential for volatility, similar to our current macro landscape.

 

Thursday, 28 March 2024 06:17

Annuities Could Be Pension Replacement

In the face of escalating inflation, Americans are increasingly longing for the retirement security once provided by pensions, a sentiment reflected in a survey revealing widespread concerns about the reliability of existing retirement plans such as 401(k)s.

 

 This shift away from traditional pensions stems from their expense and risk for companies, leading to the widespread adoption of defined contribution plans like 401(k)s, which place the onus of retirement planning on employees. However, the recent surge in inflation has exposed the vulnerabilities of 401(k)s, particularly for older adults nearing retirement. 

 

To address this, there's a growing interest in annuities, which offer a guaranteed income stream and can be seen as a modern iteration of traditional pensions. Annuities, available in various forms including fixed and variable, provide retirees with a way to insure their income stream, offering stability in an uncertain financial landscape and potentially bridging the gap left by the decline of pensions and shortcomings of 401(k)s.


Finsum: Annuities can offer a more secure return and replace the void left by pensions for many Americans.

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