Episode Transcript
Speaker 1 00:00:05 This is Annuity Straight Talk. Since 2008, your host Brian Anderson, has helped clients nationwide navigate the complex market for annuities. With Brian's assistance, hundreds of clients have achieved a profitable and secure retirement. I would know because Brian has answered many of my questions concerning annuities and retirement planning so that you can benefit as well. Let's get started. Here's Brian.
Speaker 2 00:00:48 Hello and welcome everyone to the Annuity Stray Talk podcast. My name is Brian Anderson and this is episode number 61. I am the founder and creator of this website and podcast and again, I've got a fan favorite back by popular demand. Everybody said When is he coming? When will he be here? I wanna know what he thinks. We got John Bomber in Southern California. And how are you today, John?
Speaker 3 00:01:13 Brian? I'm doing well. Thanks for having me on again. It's always a pleasure to be with your audience.
Speaker 2 00:01:18 No, no, no. I just seems like I haven't talked to you in a while. It was like last night. <laugh> again, everybody, we, we sit here and we BS for about, I don't know, 20 minutes before we get started sound checks and Hey, can you hear me? Can I hear you? Anyway, so it's kind of been my plan to do, you know, something kind of an update, a market analysis kind of thing every, you know, once a month there's something like that. I don't wanna wanna put too much pressure on you John, but you know, people love it. Like everybody calls like, Hey, can I talk? No, no, no, you can't call John, don't call him, don't bo him <laugh>. That kind of thing. So what are you seeing out there? We did, I guess it was September 7th, it was right before I went elk hunting. You were out, we talked about the stock market head fake and you know, how have you seen things come to fruition since then? Talking about like your judgements of the market and how you read things. So give us a little update, huh?
Speaker 3 00:02:13 Sure. Well, I mean, what a head fake it was, I think we did it. S and p had rallied from 20 19% rally from June to, you know, mid August, rallied right up to the 200 day moving average and then just sold off. We revisited the lows from June and then some kind of sitting on a pretty precarious level right now. But yeah, nobody can call the market, but we kind of nailed it. We did pretty good. So I didn't think that it would fall this far, but it did and uh, it, it was getting ugly for a while so
Speaker 2 00:02:47 There is no we about it. It was all you, that's why you're here.
Speaker 3 00:02:52 That was a head fake for
Speaker 2 00:02:53 Sure. I don't want to be the guy that pounds the drum annuities, annuities, annuities. Even though that's how, how I make my living and that's what I specialize in. I also want people to have market investments but be smart about how and when they participate in that. Especially in retirement. When you talk about retirement, you don't want to have the large drawdowns 2001, 2008 new Years to come back and all those things and hopefully I don't hope for market turmoil, but I do hope that everybody's plays is smart about it and doesn't take risk when they don't need to. Right.
Speaker 3 00:03:25 That's right. It's amazing how far the market's fallen in such a short amount of time and we can kind of get into the macro picture, you know, what's going on in the markets, what's driving all this. But you know, you and I were talking earlier about the bond market and just the carnage that's happened in the past year and the bond market.
Speaker 2 00:03:46 Yeah, if you want, So last night I was talking to John the night before, we are recording this, we're recording this on the 13th. It's probably gonna come out a week from now. So again, none of this stuff is meant to see you make rash decisions by any means. Obviously if it was that important then we'd release it the day or we'd go live or something like that. But I'm pretty popular but I'm not that popular to get a big live audience, right? So we could probably get John to draw people in for live, live broadcast, but not me. But again, just we're talking about long term planning objectives and you know, what John's doing here is kind of reading short term plays in the market and talking to him last night cuz we agreed to do this podcast today, well what should we talk about and do you wanna see more charts and the 200 day moving average and all that stuff. Once you understand what it is and what you know what it is, it's not that complex and not that complicated to follow. And I'm not gonna share my screen right now, but I was looking at, I looked at a guy who got out of an index annuity last year or last December. You remember me saying that last night John?
Speaker 3 00:04:51 Yeah, that's right. That's
Speaker 2 00:04:53 Right. And last year was a tough year for index annuities because a lot of 'em, an index annuity kind of always gives you an opportunity to come back and say, Oh we should have done this. Obviously you have different options within the contract. Some of those options, a lot of 'em are interest rate sensitive. And so when interest rates started to climb last year, index annuities didn't always capture every gain in the market, right? So this guy in early December last year, he came surrender free from his contract and he just got his renewal letter and he only made about 2%. And I think what last year John, do you remember what the market was up?
Speaker 3 00:05:31 Yeah, I think it was the market 20%, 16%.
Speaker 2 00:05:35 Yeah, it was a big one last year. And so it was hard for a lot of people to say, Oh I like made all this money elsewhere but my annuity didn't do anything and there's inflation and all this stuff. And so he said, <laugh>, I am not impressed at all what happened. So I looked at it and I think back, you have to think back to the time when he bought the annuity and over the term he probably did about 3%, three and a quarter I think it was something that's a little over 3% and it was again better than the fixed rates at the time. But he didn't want risk. He's probably in his, he's in his early to mid seventies right now and this is only about 20% of his portfolio. But he was disappointed because of one year. So what he decided to do, and I guess I don't need to read through the whole thing, what I recommended he do, which is a lot of people, when you come surrender free and an index annuity, you have kind of an open-ended surrender free schedule.
Speaker 2 00:06:34 And I said listen, and this is last December, so you remember what was going on on then Like we're approaching highs. I think with hit the high January 2nd, I said honestly I'd put it in the fixed account. It was paying one and a quarter, put it in the fixed account and just wait to see what happens. The idea was that we have a lot of uncertainty coming. You should I I call it keep your powder dry dry powder. And he decided to ignore that advice cuz he said, Oh I wanna make a move now and my equities portfolio has done so well, this other advisor's telling me I should put more money into it, I'm gonna transfer it over. So he took his money back and he put it into the stock market and maybe a mix of stocks and bonds. John, how do you suppose he did since middle of December last year in that?
Speaker 3 00:07:20 Well considering the bond market is down 25% year to date and this stock market's down 24% year to date, if he had a 50 50 blend, he's probably down about 24%, some higher, some lower.
Speaker 2 00:07:35 So I, I sent you this screenshot this morning, right? And I looked at that cause I was thinking about this and Bloomberg, can you really see it here? Global aggregate bond index global is down 21.3%. The US bond index is down just a touch under 15. Right? And so this is, you know, it's one of those opportunities to, I've talked about and John, if you went back on my newsletter years ago, you and I have known each other for a couple years now, but I was talking about bonds are not a suitable retirement investment. Yeah. So, and you can, why don't you, I don't know, you wanna explain a little bit about what bonds have looked like over the past 40 years?
Speaker 3 00:08:15 Yeah, well, I mean, go back to when we were kids early 1980s. I'm a, I'm a child is the early seventies, but I remember 1980 Jimmy Carter years inflation was 20% bonds were paying, you know, 16 to 20% savings accounts were paying that much as well. You know, you have this decline over the last 40 years in interest rates to, to near zero, you know, around the world. And interest rates are inverse to the prices and bonds. So as interest rates fall, the price of those bonds goes up and they become more valuable. And so you, you're getting less coupon on those bonds, but they're becoming more valuable. Valuable. So it's kind of a catch 22 when interest rates start to go up if you're in any type of duration, and I can explain what duration is, that's just the length of period of time that the bond is. If you're in any duration, you can be, you know, significantly impacted by the rise in interest rates. And that's what we've seen is we've seen, see the, the really significant rise in interest rates from what the Fed funds rate was, 50 basis points or half a percent and now it's what? Two 50?
Speaker 2 00:09:23 Yep.
Speaker 3 00:09:23 And the course of the last year, you know, the 10 year treasury was yielding 75 basis points at the beginning of the year. Don't quote me on that, but it's was pretty close less than one. Now it's yielding north of three and a half, close to four. That's a, that's a monster increase in yields. And so the sensitivity of those bonds is, has just gotten whacked. I mean you've gotten really, really cut off at the knee. It's kind of unfortunate for an asset class that was really marketed for the longest time as uh, a safe investment or you know, you always want to balance your portfolio between stocks and bonds. And this is, I think the only, only the third time in history that both stocks and bonds have had a negative year. That's just crazy.
Speaker 2 00:10:08 2018 it happened.
Speaker 3 00:10:10 Yeah, it's just, just crazy.
Speaker 2 00:10:12 And that's where, you know, and I saw, I just saw it from, you know, the guy that I was talking about, He bought his contract in December, 2014. That was the previous low. And I will tell everybody, those are the worst contracts I ever sold. They only did 3% about just because the internal rates of those, the 10 year treasury was around one and a half at the time and there wasn't a lot going, there were no other options. Now in hindsight where you can look and say, oh yeah, you should have put everything into the market and tripled your money, but again, then you're just taking risk. And so I've been telling people, I think it was, that was the year I spent in Puerto Rico, a lot of people that listened to this all the time, No, that I spent a winner in Puerto Rico and I started saying like bonds plus index annuities, fixed annuities, bonds plus you got the insurance company owns the bonds, they bear the interest rate risk through the surrender term. They don't charge you unless you surrender the contract early. Right? So it's an additional layer of insurance on your safe portfolio. So where in the past and that, you know, obviously John, you know this or you know how I feel it's like to hell with bonds buy the dang annuity for crying out loud. Like that's all you gotta do. Like fixed or index whatever you want. Now we got in good interest rates, but I've been saying this for years. Replace your bonds. Replace your bonds.
Speaker 3 00:11:33 Yeah. D do you remember that article that came out got maybe five or six years ago and it was, it was actually written by a really famous fixed income investor and he basically touted and I, I have the white paper somewhere, Brian, you know, where you can share a link to it at some point, but it was really bond replacement. The fixed indexed annuity was a fantastic bond replacement because of the overall risk in bond. You know, we heard for many, many years the risk in bonds is so great and it never really came to fruition because we never really had the spike in rates and in fact in uh, during covid 2020, you know, they actually lowered rates again so we were wrong again. But it's now really kind of reared its ugly head and it's given the ability for people to just take massive losses and the only way that they're gonna get the problem is, is that the principle loss in in your bond portfolio cannot be made up by the coupon that you're earning. So the interest or the income, the really, the only way for that to come back is for rates to be lowered again. And I just don't think that's gonna happen anytime
Speaker 2 00:12:40 Soon. Well it's kinda one of those things where everybody cheered like lower mortgage rates and then increasing bond values cuz rates are dropping as well, right? So you know, people that were 45, 50 in the early two thousands were thinking, hey this is a great time. They put a mortgage on their house at 5%, which was a really, really, really good deal 20 years ago. Mortgage rates I think were not, they were probably seven and a half percent 20 years ago. And people lose perspective of that and they realize, hey this is great. I'm getting cheap money for my house but now I can't, my savings account's not paying anything. I'm not getting anything from CDs, I'm not doing that. And that's again why I didn't necessarily call it, it was just a matter of fact in 2015 rates were damn near near the bottom right?
Speaker 3 00:13:27 Yeah, yeah, absolutely.
Speaker 2 00:13:29 Well like there's nowhere else they can go. They've appreciated in value in over and above their coupon payment for 35 years, 40 years and where else are they gonna go but down when the rates rise. And so everybody's worried about inflation. Number one thing you do is you get out of bonds. There you go. Sorry, my soapbox right?
Speaker 3 00:13:49 Yeah. Well and you may have, you hear this a lot and you may have heard it on tv, Well people talking about Tina and it's not my ex-girlfriend, it's Tina, there is no alternative and that means there's no alternative to stocks because rates were so low you couldn't make any money on a multi-year guaranteed annuity paying 1%, you couldn't make any money in your money market couldn't make any money in the bond market. Now with rates rising, what are you getting on a three to five year multi-year guaranteed annuity? 4%, 5%?
Speaker 2 00:14:23 Uh, close to five. Yeah, it's almost five.
Speaker 3 00:14:26 Yeah. So now there is an alternative that you can get a guaranteed income principle protection on your money and earn a, a pretty dang good decent rate of return versus the alternative of losing 20% in the market in a year.
Speaker 2 00:14:41 I mean there is a backside to this. Obviously if a rates do drop, bonds are gonna get a bump, right? But I don't know how many times in the past 10 or 12 years people have said, Oh if I could just get 4% or if I could just get 5%, well now you can do it and you know, my phone's not ringing off the hook but there are a lot of people that get it and I've been pretty busy but I know the insurance companies are freaking like some people get it, they're doing a lot of business right now locking stuff in.
Speaker 3 00:15:07 We talked about that. I was uh, took me almost 47 minutes one day to be on hold with an insurance company to to, to just service the contract to get a rep on the phone. We talked about issuing that contract. It took almost a month and a half to get the contract issued by to the client.
Speaker 2 00:15:27 So I'm gonna look it up yesterday I had one quick question about RMDs for a client. I like to do service. So my call was 21 minutes and I bet it's 20 minutes on hold, maybe 45 seconds on the call. So I didn't beat your 47. Clearly I choose better companies with better customer service and employee retention than you do <laugh>.
Speaker 3 00:15:50 That's right, that's right. I've made those mistakes. I have to live
Speaker 2 00:15:55 With that. Yeah, well your favorite one is the one we did did together. The phone rings in Pakistan and your, your rep shows up. No thank you. Right <laugh>
Speaker 3 00:16:09 Yeah was it was funny. That's
Speaker 2 00:16:12 Funny. It's a joke guys. It just, uh, some companies have outsourced their customer service programs to other countries and you'll get a call center in somewhere else and it's, well, I don't really like it. You guys make your own judgment I guess so not to make too much light of it.
Speaker 3 00:16:32 Yeah. Again, that's, it's funny <laugh>
Speaker 2 00:16:37 No, and, and I don't want pick on, that's why I didn't mention by name the guy who got rid of his annuity and jumped back into the market. But that's one thing I want to drive home with everyone today is again, you're not looking at so over, you know, and that guy did well. Like there were years where you made six 7% and there were years when he made zero. Remember from 2014 to 2021. Yeah, it went up at the end but there was a lot of volatility in there. Was there not?
Speaker 3 00:17:02 Oh there's a ton of volatility.
Speaker 2 00:17:04 Yeah. And so it was just the end result. Well, oh okay. And then how short lived was that within one year a guy probably gave back a quarter of what he had, right?
Speaker 3 00:17:16 Yeah, yeah, absolutely.
Speaker 2 00:17:18 So what is your goal in retirement? Do you want to, I mean cuz they're going to make up ground at some point by stemming losses and that's kind of the key to doing this. So
Speaker 3 00:17:26 Yeah, what I like to do, and I had this conversation this morning with a great client of mines out of for Collins, Colorado. I told him, you don't have to take a ton of risk in retirement. You've already won the game. You know, you're in the fourth quarter, there's five minutes left in the game, you're up by 25. All you need to do is generate nominal rate of return That's reasonable without taking a ton of risk and you're gonna have a really successful retirement. Where you're getting yourself in trouble is if you start to chase the markets or you get fomo, fear of missing out and you're trying to chase returns with a large portion of your money, that's where you really get into trouble.
Speaker 2 00:18:06 No, I to I totally agree. That's why I'm gonna look it up real quick. Vegas odds. The stock market and annuities.
Speaker 3 00:18:14 Yeah, and, and to my point, I tell people a lot, I tell people, you know, if you've accumulated, you've been prudent with your money, you know it's, you've won the game. Now what you have to do is play defense. You don't necessarily have to play a ton of offense. You know, you want to earn a nominal rate of return four to 5%. I think you're gonna be fine for a lot of people when they see the market going up and they get, uh, overzealous and that's probably what your client did when he, what did he get 3% on his annuity and then dumped it into the market. You know, you've gotta win the game. If you've won the game, why are you gonna sacrifice, you know, why are you gonna take a ton of risk?
Speaker 2 00:18:54 Hey, especially when you can get 5% now and I'm gonna do, I gotta do a, a podcast, a little newsletter on something in the next couple of weeks. Cuz I, I know a lot of people locked in at like four or something around that six months ago. And the cost to wait like your four percent's, you know, better than four and a half, four and three quarters, that kind of thing. 4% six months ago is better than four and a half today. So you're not that far behind just because you didn't stick around and wait for the highest rates. I think John, you could correct me if I'm wrong, and I talked to my, I talked to kind of one of my mentors who's the, he's the institutional guy from Manhattan. He's retired. Brilliant dude. And you know, and he mentioned things are gonna have to normalize whether that means interest rates drop or just stay stable for a while, they're gonna have to do that and that's what the fed's trying to do right now. They're gotta tamp inflation and all that stuff. So that's kind of what we're looking at is there's gonna be a point, in my opinion, there's gonna be a point where interest rates at least cap out, maybe even drop. And so the time is now like take a good deal when you see the deal you want.
Speaker 3 00:19:58 Yeah, absolutely. You know, the Fed is so hell bent on curbing inflation because it, in fact it affects a hundred percent of the population. You know, they're so hell bent on controlling inflation that they may raise too aggressively and break something in the economy, which means you're gonna have a huge recession. Now, technically I guess we already are depending on who you talk to, but you know, you get a recession and that typically brings down inflation pretty significantly. And then the problem is, is that what do you need to do in order to get out of the recession is you have to stimulate the economy. So you either print more money, which we don't necessarily want to do or you lower rates or you keep 'em the same. So I think at some point if the market continues to fall, I know we had a rally today, it was pretty nice repre from the last few weeks, but if you, you get a pretty significant recession, the Fed may have to pivot now they've said they won't, but just it depends, you know, we're an election cycle.
Speaker 2 00:20:58 Yep. Um,
Speaker 3 00:20:59 Who knows what type of pressure is on, uh, the Federal Reserve.
Speaker 2 00:21:02 Yeah. So protect what you have and protect it when you can. Again, I said that a lot of people say, Oh, if I could get four or 5%, well yeah, you're in that ballpark. And also, you know, when you tell, you think about John reading the market and looking at the charts and all that stuff, there's a good time to get back into some of that stuff, but you gotta peel a little bit off and put it in your back pocket. That's the Vegas odd stock market and annuities. You win a little bit, throw it in your back pocket and don't spin it again. So they all play into, into account and I think this is a good time to, uh, look at doing it as we've seen things, uh, rates rise and things change through the year and risk becoming ever more present and more likely see something bad go down, right?
Speaker 3 00:21:44 Yeah. Yeah. You wanna take a look at the chart from uh, our last podcast? What, what was it? The head fake that we talked
Speaker 2 00:21:51 About? Yeah, let's do it
Speaker 3 00:21:53 Back in September. Let me just share this with you. I thought it was interesting. I was looking at it today, so maybe you can see this, this is our good ol s and p 500 daily chart.
Speaker 2 00:22:04 Yep.
Speaker 3 00:22:04 I think when we talked, and I'm just gonna draw again when we talked, what that was, uh, September, mid-September we talked about the head fake
Speaker 2 00:22:15 Early September. Yeah.
Speaker 3 00:22:17 Yeah. We came in here to the 200 day moving average right here and it literally hit this area of supply declining 200 day moving average and sold off pretty significantly. Uh, you even had a couple gap downs in here, which were pretty ugly and you had increased volume and you had tried to have a little rally and then you ultimately just revisited your June lows right here. And we've kind of been sitting around here, we had that beginning of October rally and now we have breached that breached the lows from June. And you know, we had obviously it was interesting today we had this huge selloff in the morning mm-hmm. <affirmative>. If I go to the 15 minute chart on today, you can see that right Brian?
Speaker 2 00:23:05 Yep. Yes I can.
Speaker 3 00:23:07 That's today. So yesterday was here and kind of a, a five, six day sell off here. Futures were looking really good this morning. Inflation came out and the market just dropped. I mean it just, the bottom dropped out of it and something happened right around 9 30, 10 o'clock and you just saw this massive rally. And I wanna say that that's algorithmic driven. It's gonna be, you look at it, you had this rally, you were down literally down, you know, 3% at the open and then you turned around and had this rally, you had this rally from the morning from down to to, it was a 5% reversal on the day. Market wasn't up 5%, market was up, uh, 2.64. But he had to climb out of that hole. And you see that here, you, you started here, you had a about 3% rally from the morning. Hmm. You know, if you take a look at that, I mean inflation came in hotter than expected but yet we get an update. Rates were down, dollar index was up. A rally like this just to me doesn't make a whole lot of sense,
Speaker 2 00:24:25 Right.
Speaker 3 00:24:26 So I don't like them. I don't like these big snap rallies because then you get body slam the next day, they're not constructive. People start to pile in bottom is here and then you just get body slam the next week. They're not fun. You know, I'd rather see, you know, constructive, a constructive bottom built half percent days low volatility, you know, you get three, 4% rallies in a day. They're not very long lived. So, but we're in a precarious position, you know, maybe we get an October rally, you know, five or 10% give us a little bit of breathing room. But ultimately I do think, you know, with earning season coming up that we will revisit the 3,300 level and potentially lower until this is all
Speaker 2 00:25:10 Over. Well and understand the point of rising rates is so that economy will slow down but the economy slows down. The stock market doesn't respond well. Okay. So get your dang fixed rates and all your safe stuff, pull it off. We can't pull it off at the top right now because a lot of people waited too long. But better guarantees available right now are there for it. So we'll keep watching it. Right. And we'll have John back and uh, I don't know, the way people beat on my door to calling me like when's he gonna come back and tell us what's going on <laugh>? I always to hear it all the time. I'm tired of it. It's gonna be like, should I just turn it over to John John's the annuity Straight Talk podcast? Yeah,
Speaker 3 00:25:54 <laugh>. Well I'm heading to Florida in November so maybe we can take some time to do a podcast while I'm in sunny Florida.
Speaker 2 00:26:02 Oh, that'd be cool. We got a lot of viewers in Florida so maybe they'll uh, come hit you up. Do you want to talk to John while you're in Florida? I will allow it. Do you have to call me and I will put the credit card down. You guys can go have lunch. How about that <laugh>?
Speaker 3 00:26:16 Sounds good.
Speaker 2 00:26:18 <laugh>. All right. I appreciate you going to uh, or joining us today. Thank you so much for your expertise man.
Speaker 3 00:26:24 Thanks for having me again, Brian. Appreciate it. Look forward to being on again.
Speaker 2 00:26:28 Yeah, you will be back And this has been episode 61. I'm not sure what the title is yet cuz I have to think about it after I look at it, but we'll get it and we'll have John back in a few weeks. I'll be in Kansas I think maybe we had to do when I'm in Kansas. How about that? That'd be great. Okay. Sounds good. All right, well thanks again everybody. Thanks for stopping by and we will see you next week for episode 62. Have a great day. Okay, bye.
Speaker 1 00:27:03 You have been listening to annuity straight talk. The preceding information is for information and educational purposes only. It does not represent tax, legal or investment advice. The views expressed on this program are their own and do not necessarily reflect the in the strict talk or his partners. No information presented to today should be acted meeting with the Qualifi license professional. It's important that all insurance contract disclosure carefully before decision guarantees are based the financial and claims paying the insurance company.
