The mid-term elections will do little to slow down the American economy and the split Congress all but assures that Trump will finish out his first term as President. Although Nancy Pelosi and company took control of the House, the Dems fell short of getting the Senate, so Trumpâ€™s deregulation, tax-cuts, and other pro-growth economic policies are here to stay, and thatâ€™s great news for investors. I also think that the American economy should continue to reap the benefits of Trumpâ€™s policies well into 2019, and possibly beyond, so I remain optimistic on the economy.
Although the elections are over, the volatile swings in stock values have continued which are being driven largely by the Brexit fiasco, rising interest rates, and sinking energy prices. I still think the volatility will eventually subside and I would not be surprised to see another Santa Claus rally in equities toward the end of the year based on the idea that good economic times should continue.
As for bonds, the Fed may hold off on raising rates before the end of the year due to the Eurozone economies underperforming, but I think the strong economic data will allow the Fed to continue to raise rates in 2019, but possible at a slower pace. The good news is that I have been defensive in bonds within client portfolios by shortening maturities, using non-correlative bond sectors, and taking a tactical approach to bonds in general.
Since I am bearish on bonds, what am I recommending to clients to combat rising interest rates? During periods of rising interest rates, I think that investors would be wise to consider tax-deferred fixed annuities. Fixed annuities** are complex investment contracts and not all are created equal. There are many factors to consider such as the credit rating of the annuity company, different interest rates, and liquidity options, to name a few. In addition to these factors, there are many, many companies to choose from who offer fixed annuities**, so it is not just as easy as which one is paying you the highest interest rate since you may be tying your money up for long-surrender periods with a company that has credit issues, which could limit access to your money. As a result, I continually research these companies and the different interest rates and options each company offer, and I would be happy to help you with any questions you may have if you are considering making a change.
When I first got into this business 23 years ago, my Dad had been utilizing fixed annuities** for many of his clients since they were paying competitive interest rates. Since then, interest rates slowly declined to nearly zero in 2011, so Dad recommended his clients consider bonds since the value of bonds generally rise when interest rates on fixed annuities** go down. Fast forward to today, many investors realize that interest rates are going to continue to rise, so they are once again considering fixed annuities** that my Dad recommended many years ago. The investment world goes through cycles, and now it appears that fixed annuities** are coming back into favor with investors. I also believe that you should be tactical with how you utilize a fixed annuity in your portfolio since I donâ€™t think it would be wise to tie your money to an interest rate that is longer than 3 years and I would be happy to talk to you about how to best place these within your portfolio. The more things change, the more they stay the same, and itâ€™s important to react to the cycles that the investment world goes through over time to ensure you portfolio is taking advantage of these changes.
In addition, if you have a part of your portfolio that you want to remain conservative, but donâ€™t want to put it in a low-yielding bank savings account, a tax-deferred fixed annuity** might be an option you could consider. My staff and I would be happy to discuss with you if fixed annuities** should play a role in your portfolio.
Just a Thought
Always bear in mind that your own resolution to succeed is more important than any one thing.â€ť
-President Abraham Lincoln
The views expressed are not necessarily the opinion of FSC Securities Corporation, and should not be construed directly or indirectly, as an offer to buy or sell any securities mentioned herein. Investing is subject to risks including loss of principal invested. Past performance is not indicative of future results. This material contains forward looking statements and projections. There are no guarantees that these results will be achieved. No investment professional or strategy can accurately predict market performance. The bond market involves risk. In general, when interest rates go up, bond values go down and vice versa, and this effect is usually more pronounced for longer-term securities. No investment strategy can guarantee a profit or protect against loss. **Guarantees are subject to the claims paying ability of the insurance company.
The S&P 500 Index cannot be invested in directly, and is unmanaged.
Any fixed income security sold or redeemed prior to maturity may be subject to a substantial gain or loss. Depending upon the municipal bond offered, alternative minimum tax and state/local taxes could apply. Generally, municipal bonds generate tax-free income, and therefore pay lower interest rates than taxable bonds. Therefore, municipal bonds may not be suitable for all investors. Please see your tax professional prior to investing. High-yield bonds typically have lower credit ratings and carry increased risks of price volatility, illiquidity, and the possibility of default in the timely payment of interest and principal.
There is no guarantee that a diversified portfolio will outperform a non-diversified portfolio in any given market environment. The price of commodities, such as gold, is subject to substantial price fluctuations over short periods of time and may be affected by unpredictable international monetary and political policies. The market for commodities is widely unregulated and concentrated investing may lead to higher price volatility. Sales of CD's prior to maturity may result in loss of principal invested. Federal deposit insurance generally covers deposits of up to $250,000 in the aggregate for each depositor in each bank, thrift, or credit union. A customer should ensure that purchasing any insured CD will not bring his or her aggregate deposit over $250,000 FDIC insurance limit. Investors should be aware that there is no FDIC insurance coverage for any principal losses that may be incurred.
These links are provided for informational purposes only and FSC Securities Corporation does not endorse or accept any responsibility for the content of these websites. FSC Securities Corporation does not guarantee the accuracy or completeness of the information appearing on the linked pages and does not assume any liability for any inaccuracies, errors or omissions in any information provided on the pages.
There are no guarantees that dividend-paying stocks will continue to pay dividends. Companies may reduce or eliminate the payment of dividends at any given time.