Bond ETFs & Indexed Annuities

| July 16, 2020
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One of the key benefits of a bond ETF is the immediate diversification, both across your portfolio and within the bond portion of your portfolio. Your returns will tend to be more resilient and stable than a portfolio consisting of only stocks. Indexed annuities also provide a consistent form of income in retirement by guaranteeing a specific rate of return even in poor market conditions. These conservative strategies are critical for people who are nearing retirement, looking to maximize their income, and mitigate downside risk.

The most important aspect of bond ETFs are their accessibility and liquidity. They are traded on an exchange like a regular stock and offer investors the ability to move in and out of a position very quickly. In contrast, investing in typical bonds would force the investor to wait until maturity to receive the principal and interest payments or take a penalty for selling them early.

Bond ETFs can come in a variety of forms and as I mentioned previously, they are liquid and easily accessible. These traits make bond ETFs great for reducing the default risk, the risk that a company will go bankrupt and not be able to pay their debts. There are funds that aim to represent the total market, or funds that slice and dice into specific parts of the market such as investment-grade or short-term bonds. Depending on the investor’s risk tolerance and time horizon this ability to diversify can be extremely valuable to their overall portfolio.

Indexed annuities are another conservative investment vehicle and when managed properly they can provide you with tax-free income in retirement. These annuities offer you a floor, or minimum rate of return, even in volatile market conditions. In any given year, the least you can make is the 2% minimum. But because of that feature the indexed annuities will also come with a cap on the gains you can make, typically around 8%.

What most investors usually neglect is the tax associated with each of their investments. Indexed annuities can be an immensely powerful tool if they are set up inside of your Roth IRA. Even if you have annuities in a tax deferred account, they can still be part of a Roth conversion. Once the annuity is in a Roth and you annuitize to start the stream of lifetime payments, all payouts in retirement will be tax-free.

Speaking to a financial professional about your specific needs and wants in retirement will allow them to come up with a strategy that works for you. If you have any questions about these topics or would like to schedule a free consultation with any of our advisors, please email me or go to to get more information.

Written By: Johnny Weeks |



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