Optimizing Portfolio Performance for Income-seeking Investors in a Rising Interest Rate Environment May Be as Easy as Adding Fixed Index Annuities to the Mix

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New research from WealthVest shows that adding fixed index annuities and reducing or eliminating bond exposure improved risk-adjusted performance, historically, during periods of rising interest rates, falling interest rates, and fluctuating interest rates.

Our research showed that adding fixed index annuities to portfolios, especially during a period of sharply rising interest rates, protected premium while preserving positive returns. Wade Dokken

Building portfolios that generate enough income for older investors, those who are nearing or in retirement, during a bond bear market presents significant challenges for financial professionals.

Since the Federal Reserve is expected to continue to encourage interest rates higher during 2016, advisors who are evaluating portfolio components may want to look more closely at fixed index annuities, according to the findings of a whitepaper published by WealthVest.

The research indicates that adding fixed index annuities to the portfolios of risk-averse investors can help optimize performance. An optimized portfolio delivers the highest potential return in keeping with the risk tolerance of the investor. The research underlying the paper modeled portfolios during diverse periods, including:

  • 1950 through 2014: A period that encompasses a bear market (rising interest rates and falling bond values) and a bull market for bonds (falling interest rates and rising bond values).
  • A bond bear market, 1950 to 1982: On the first day of 1950, a 10-year U.S. Treasury yielded 2.32%.
  • A bond bull market, 1982 to 2014: On the first day of 1982, a 10-year U.S. Treasury yielded 14.59%.

“With the United States on the verge of another period of rising interest rates, fixed index annuities should be included in portfolio optimization analyses,” said WealthVest Co-Founder and Co-President Wade Dokken. “Our research showed that adding fixed index annuities to portfolios, especially during a period of sharply rising interest rates, protected premium while preserving positive returns.”

Of course, financial professionals also must consider the overall suitability of annuities for investors, evaluating issues such as the ability to meet liquidity needs in light of surrender charges and other restrictions, limitations, and risks.

You can review the research by downloading Rethinking Retirement: The Role of Fixed Index Annuities in an Optimized Portfolio or reading FA Magazine’s March 2016 article, Fixed Index Annuities and Rising Interest Rates. The research was co-authored by Wade Dokken, Lincoln Collins, Jack Marrion, and Erwin Kalvelagen. You may watch the webinar presentation on Optimization.

About WealthVest
WealthVest is a financial services distribution firm specializing in training financial professionals in the essential building blocks of retirement planning. WealthVest provides the research and tools to help financial professionals, and their clients, plan for retirement.

About Wade Dokken
Wade Dokken is Co-Founder and Co-President of WealthVest, alongside his partner, Lincoln Collins. WealthVest designs, markets, and distributes private pension solutions focused on high consumer value. Wade was among the founding U.S. executives and served as National Sales Manager, Chief Marketing Officer, and CEO of American Skandia, a $43 billion variable annuity company. Dokken oversaw the sale of American Skandia by Goldman Sachs to Prudential Insurance in 2003. Dokken is also the author of “New Century, New Deal,” a public policy analysis of the challenges facing Social Security in the coming decades. Dokken’s career started at PaineWebber in 1984.

About Lincoln Collins
Lincoln Collins is Co-Founder and Co- President of WealthVest. He is a senior financial services executive with an entrepreneurial spirit. He led the launch of the Hartford Life Limited, Europe as the Chief Executive Officer, and within four years, generated sales over $1.25 billion and was a top-ten provider of both variable annuities and private pensions. Prior to The Hartford, Lincoln helped launch American Skandia as employee number 14 in 1988. He was the leader of Skandia’s strategy and product development teams before being named Chief Operating Officer. Lincoln played a major role in the development of the annuity platform, mutual funds, 401(k), and variable life product lines.

About Jack Marrion
Jack Marrion is president of a research consultancy that publishes the Index Compendium newsletter, the consumer education materials of Safe Money Places, and the Advantage Compendium research studies. He is frequently referenced by regulators and in SEC rule filings relating to annuities, as well as appearing as an expert witness. In 2006, the National Association of Insurance Commissioners asked him to address their annual meeting and teach regulators the realities of index annuities. He was invited back in 2009 to talk to the NAIC about the effects of aging on senior decision-making. He has an MBA from the University of Missouri and has conducted doctoral studies in the area of cognitive bias in decision-making.

About Erwin Kalvelagen
Erwin Kalvelagen is a graduate of VU University of Amsterdam with a Doctorate of Science in Econometrics. He is currently the owner of Amsterdam Optimization Group, providing services related to mathematical programming (optimization) models and their application to real world problems. Erwin Kalvelagen and the Amsterdam Optimization Group contributed to the mathematical findings in this piece.

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Dia Johnson
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