Annuities are one of the safest financial securities that exist, but that doesn't mean they are without some risk. Sure one of the biggest risks to an annuity is dying early, but there are other external risks like liquidity. Annuities are among the most illiquid contracts and often come with heavy penalty fees in withdrawals. Additionally, if an annuity company goes bankrupt they aren’t regulated by FINRA, and state and local insurance agencies only cover between $250,000-500,000 in losses. In the current environment, inflation growth is a substantial risk to annuities because it devalues the future payment stream in a fixed rate annuity, and even if the Fed raises rates to curb inflation this will only make it a less attractive yield in comparison to the market.
Finsum: Overall, annuities look like one of the safest securities and variable rate annuities may mitigate interest rate risk.
Active funds get overlooked by many investors in their retirement portfolios because investors view them with a certain amount of risk aversion. However, rising inflation and positive income expectation make them a viable investment alternative. For global diversity, investors should consider SPDR SSgA Global Allocation ETF and the Invesco Optimum Yield Diversified Commodity Strategy No K-1 ETF which have unique exposures. For those wanting to maintain fixed income exposure but better yield, First Trust Low Duration Opportunities ETF and First Trust Prefered Securities Income ETF are both debt-focused funds that are great for retirement. Active ETFs have a fee advantage over the often considered mutual funds.
FINSUM: These are great alternatives given the pending interest rate and inflation risk that are both permeating bond markets.
There is a growing interest among investors, particularly when it comes to retirement, in annuities. Nearly 4/5ths of investors have interest in annuities but as few as 10% of retirement plans offer them. Things are changing at fidelity however, as they are giving the opinions for a guaranteed income direct plan if your employers pick it up. And it seems more employers will be taking on annuities in part of their 401k coverage given the 2020 Secure Act which eased the legal burdens on companies when picking up annuity coverage. Additionally Fidelity is giving the option of naming a beneficiary to your annuity which will curb the biggest concern among investors.
FINSUM: Most Americans aren’t saving enough for retirement and for those retiring sooner rather than later an annuity is a more secure bet given market turmoil.
Tech stocks had a big fall this week, but it more importantly it was the concentration of tech stocks that hedge funds loaded up on that took the biggest tumble. For instance, Farfetch Ltd. and Snowflake Inc. faced their largest drops since March. Hedge funds have been bullish on growth stocks and the high value/low income stocks set record holdings dating back to 2002. Driving tech’s downfall are rate hikes being priced into yields and undermining stocks hinging on future cash flows, like tech.
FINSUM: Tech stocks are more fragile than ever because profits are dwindling after the pandemic boost, and future rate hikes could cause serious tech blowback.