The Federal Reserve’s carefully orchestrated announcement this week that tapering their bond buying program does not necessarily mean tightening their monetary policy was well received by markets.
The Dow Jones soared, while treasury yields stayed stable despite some volatility during the day.
In the realm of fixed income and specifically the Secondary Market Annuities landscape, rates remain stable. With a zero interest rate policy likely to be the international “New Normal” for the foreseeable future, investors on the sidelines who are considering SMAs should enter the market with a laddering strategy using lump sums to provide for future flexibility.
There is no economic rationale for making a 0% rate of return now while waiting for rates to rise, potentially waiting for years, when you can make a good, safe rate of return now and also capitalize on higher rates in the future.
The best way to execute the strategy is to utilize lump sums and income streams to safely invest principal, produce income, and provide future flexibility for reinvestment. Give us a call for details how to put this into play in your portfolio.
Here is how the market reacted:
It looks like rates will remain low for the foreseeable future. From a recent article:
Currently, the Fed’s “forward guidance” consists of an unemployment rate threshold of 6.5% and an inflation rate threshold of 2.5% to help guide monetary policy. In other words, as long as unemployment stays high and prices remain low, the Fed will continue to do what it can to keep rates low.