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Diversify in Tough Times With Bonds and Annuities


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									Diversify in Tough Times With
    Bonds and Annuities
As an investor nearing retirement, you’ve spent
years building your wealth. Now you want to
maintain it without having to worry about
incurring major losses.
The traditional way of maintaining wealth has
been through the purchase of bonds: U.S.
Treasury and municipal and corporate bonds, to
name just a few. Another way has been with a
fixed annuity.
In today’s economic environment,
however, bond and fixed
annuity returns are
not what they were.
Interest rates are historically
low, and before raising them,
it’s likely that the U.S. Federal Reserve Board will
need to see stronger employment markets and at
least some indication of higher inflation. This
seems unlikely at the moment.
As your bonds mature, you may find that your
overall portfolio yield will decline because the
new bonds you purchase to replace the old ones
offer lower rates. The same would be the case if
you purchase a fixed annuity now. You would be
committed to an investment vehicle that offers
the prevailing (low) interest rates.
That said, bonds and fixed annuities are still
important investment vehicles. Why? Because
by including many types of investments in your
portfolio you diversify it.
And diversification can be a very valuable trait.
For example, consider the 2008 recession. In
those days, a low return from a bond or fixed
annuity was certainly preferable to a loss of
approximately 37%, which was sustained by
investors in index funds that tracked the S&P
500 Index.
Of course, stocks are also important for portfolio
growth, so it’s important not to write them off
Indeed, different investments have different
advantages and risks and are therefore suitable
for different investors. As a result, it’s a good
idea to consult a professional before purchasing
any investment, including bonds, stocks or fixed
annuities, however appropriate the investment
may seem.
        Randy Bett

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