Wealth Management
Income investors are flummoxed by the turbulent bond market and many are left wondering what to do. Sure dividend stocks might be an okay option but for those closer to retirement times are too turbulent to rely on them. Instead, rather than sinking your teeth into longer-term bonds with so much interest rate uncertainty, investors should ladder or stagger their fixed rate annuities. Sequencing can allow you to fight the current inflation with better yields than bonds and CDs with more security than equity markets. Additionally, laddering can allow you to be ready to pull out in case bond yields rise to provide more income and on top of that get in at a lower price.
FINSUM: Sure short-run annuities have less return than an ultra-long option but if interest rates pick up you won’t be hung out to dry.
The direct/custom indexing firm GAMMA Investing got two new investors, riverFront Investment Holdings and Baird. Lorraine Wang is the CEO of GAMMA and supplies custom index-based accounts specifically for financial advisors. Before leading, GAMMA Wang was the head of ETF products and research at Invesco PowerShares. Now GAMMA specializes in custom indexing that tailors to the social, tax, and investment goals of its clients. As part of the investment RiverFront’s COO, Karrie Southall, and executive Director, Laura Thurow from Baird.
FINSUM: The number of firms getting bolstering their custom/direct indexing platforms is growing rapidly, and ESG’s growing prominence is a big part of that.
Former President Donald Trump wasn’t quiet about his opposition to traditional media outlets and big tech, and in an attempt to solidify that stance he tried to form his own SPAC. However, Biden’s regulatory watchdog and SEC chairman Gary Gensler may be cracking down on the newly forming SPAC. Trump’s SPAC is being backed by some Chinese investors who are drawing the regulator’s eyes. Additionally, Gensler has made it known his opposition to SPAC’s as a financial vehicle regardless. The SEC will be doing more research into Trump’s SPAC and it will face an uphill battle to get approval.
FINSUM: In a wider setting SPACs are still an interesting alternative, but Trump’s history and investors make this particular SPAC riskier.
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Companies Newfound Research and Simplify Asset management are partnering on a selection of new model portfolios that are giving investors more options on their equity holdings. The structured alpha portfolios are designed to target different growth offerings and provide different risk exposure. With the four portfolios coming in 20/80, 40/60, 60/40, and 80/20 equity allocations investors will have exposure to equity, rate, and volatility markets to mitigate financial risk. Fund advisors are trying to get outperformance from strategic capital efficiency rather than trying to pick winning stocks at the right time.
FINSUM: Even basic equity/bond allocation strategies in model portfolios are a good way for advisors to drill down the risk in a portfolio.
Covid-19’s continued crisis and the growing number of new strands have put lots of pressure on bond markets which has spiked an interest in annuities because there is no yield in fixed income. However, ETFs are looking to capitalize on annuities growing popularity because a defined outcome ETFs offer a lot of the same advantages as annuities. Buffer or defined outcome ETFs use options to track indices which means that by buying a series of put options and selling a series of call options they cap and floor their earnings which means a smooth stable ride that is an alternative to bond markets and annuities as an equity hedge. They also have an advantage over annuities because they don’t have the hefty upfront costs annuities usually have.
FINSUM: This is a great product to hedge the S&P but it isn’t the guaranteed income an annuity provides.
There are a record number of people with over a million in the 401(k) accounts which means even more people are considering retirement in the upcoming year. However, there are lots of factors that investors need to consider before even thinking about early retirement. Many consider a $1 million nest egg enough however the 25x rule (retirement is 25 times your annual expenses) might not go far enough. Rising healthcare costs are eating away at existing retirement accounts, and many fail to accurately gauge their retirement healthcare costs. Additionally, rising inflation is eating away at the paper wealth and needs to be a factor in. If you are planning on retiring early you will need a series of tax loopholes to do so without paying high penalties. Finally, an early retirement needs to rebalance their portfolio to a less risky strategy sooner which may leave you with less than you were projecting.
FINSUM: Meet with an accountant or your financial advisors so you can fully gauge how expensive an early retirement could actually cost.