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5 Bond Alternatives You Should Consider Right Now

October 25, 2022

5 Bond Alternatives You Should Consider Right Now

As Erin Kennedy and Tom O’Connell recently discussed, you’re probably aware that this is the second worst period for the stock market since the 1970s. Both stocks and bonds are declining while inflation is in the double digits. If your portfolio is invested with the traditional 60/40 split of stocks and bonds, you should consider looking for some bond alternatives now.

Why You Need Bond Alternatives

While your low-interest rate bonds are probably as safe as they can be, meaning you can redeem them at maturity for their face value, you’re still losing money. Low-interest rate bonds just can’t keep up with double-digit inflation. And since most people don’t have pensions or defined benefit plans, you’re responsible for providing for yourself during retirement.

1. Fixed Annuities / Fixed Index Annuities

Fixed and fixed-indexed annuities are a great option for providing a guaranteed income during retirement. When you purchase an annuity, you can receive a reliable income every month, which allows you to budget and live comfortably in retirement. Fixed annuities even include a mortality credit, which means they can pay out more over time. Indexed annuities also have a floor to protect you from market losses.

2. Buffered or Defined Outcome ETFs

Buffered or defined outcome ETFs have a floor and a ceiling, protecting you from losses while allowing for gains. With a buffered ETF, you can generate income in a safe environment. These types of investment products are recommended by finance professors and doctors of economics alike because they are a great alternative to bonds.

3. Structured Notes

Structured notes are another way to earn interest safely. They are like a CD, but they include a downside buffer with an upside interest rate. Structured notes are usually from 1 to 5 years in duration and are a great addition to your portfolio.

4. Real Estate Investment Trusts or REITs

Real estate investment trusts or REITs use real estate to generate income and dividends for people. Real estate can be a sound investment, but you have to understand what your chosen REITs are invested in to assess how safe they are and how much leverage they’re taking. REITs can provide higher than money market rate of returns, which is what makes them so attractive.

5. Cash Value Life Insurance

Traditional whole-life or permanent life policies are a better investment than a CD or money market account. You have to look at the credit rating of the insurance company because ultimately you rely on that company for payouts. Cash life insurance policies allow you to grow your wealth tax-deferred using compound interest to build real value. You can even borrow from the policy once you have built up some cash value.

Even with the declining returns of stocks and bonds, you can provide for yourself during retirement. There are several alternatives to bonds, which you can use in your portfolio. Our financial advisors are happy to help you evaluate your current investments and see if these alternatives fit into your financial plan.