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I think that Annuities in general can be used as an asset class. (purchased GLWB ~20% of our Income . No idea what % of our wealth but certainly declining).
I think RE is an asset class. (~40% of Income. Variable % of our wealth).
Our CD's are an increasing asset, moving discretionary cash to longer holding periods. Currently non-Income.
Our spendable Income should be increasing over the next 4-6 years (~80 yo) as we take more Income from the GWLB annuities, PLUS loan is paid off, and taking "$ome dough" from discretionary stock-cash accounts
you can count annuities anyway you like . should one count them as anything but an income stream like ss or a pension , the answer is likely not.
annuities are buying a pension unless they are variable annuities and not annuitized yet.
in which case the investment is still in its native form and allocation.
real estate is an income stream in retirement .
unless you can sell off the hall closet and rebalance it to the proper allocation if other parts of the portfolio fall , then it does not belong as part of the portfolio that is generating your income .
it will only mess things up sticking it where it doesn’t belong unless it’s a reit . in that case it is equities.
just because something is an asset class does not mean it belongs in the income generation portfolio.
the portfolio used for income generation needs to be liquid , easily swapped from one investment to another as well as stress tested for success rate of not failing .
portfolio stress testing does not apply to income streams.. income streams get added to what a portfolio with a high success rate can bring to the party
Last edited by mathjak107; 09-10-2023 at 12:45 PM..
treasuries are the only one though that can be counted on to perform reliably in a recession or depression when the fed has to reduce rates and the economy is headed for the toilet .
so if diversification is why one wants bonds then little in your list qualifies since they all are pretty much joined at the hip to equites …
what is good for those assets you listed is good or better for stocks …..
they willl perform horribly in a recession or depression .
so no , they don’t replace treasury bonds in many ways and are not an alternative to bonds since most of your list is stock related
dividend stocks , preferred stocks and reits are stocks first and foremost along with real estate crowd funding which will take a hit in a recession or depression .
fixed annuities can not be rebalanced in most cases to buy more equities when rebalancing is called for , so no they don’t replace bonds there either
corporate bonds are more stock like then bond like.
there is very little there that can replace bonds as far as keeping the allocation you want and the volatility range you want.
as well as providing proper diversification in recession or depression.
so one has to ask themselves what roll are these bonds supposed to perform for me before deciding on what to own or what will replace them.
your list spins off income , that doesn’t mean they are a replacement for bonds and the roll bonds can play in a portfolio.
even a 100% equities can spin off income if that’s what one wants
Last edited by mathjak107; 09-10-2023 at 01:01 PM..
you can count annuities anyway you like . should one count them as anything but an income stream like ss or a pension , the answer is likely not.
annuities are buying a pension unless they are variable annuities and not annuitized yet.
in which case the investment is still in its native form and allocation.
real estate is an income stream in retirement .
unless you can sell off the hall closet and rebalance it to the proper allocation if other parts of the portfolio fall , then it does not belong as part of the portfolio that is generating your income .
it will only mess things up sticking it where it doesn’t belong unless it’s a reit . in that case it is equities.
just because something is an asset class does not mean it belongs in the income generation portfolio.
the portfolio used for income generation needs to be liquid , easily swapped from one investment to another as well as stress tested for success rate of not failing .
portfolio stress testing does not apply to income streams.. income streams get added to what a portfolio with a high success rate can bring to the party
I agree. SPIAS should not be considered an asset and should be only used to generate income. I don't know much about GLWBs. I don't know why you would buy MYGAs and not just CDs. The highest paying MYGAs that I've seen are not that highly rated (i.e., Comdex scores).
a glwb usually comes as the final option for annuitizing a variable annuity .
so you start with a variable annuity in investments , when you reach retirement that is the deal you get when you convert those investments to an income stream
a way to costly , inefficient, overly complex way of buying an annuity income stream in my opinion.
Location: We_tside PNW (Columbia Gorge) / CO / SA TX / Thailand
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Quote:
They will perform horribly in a recession or depression
As you know well....
All RE, and private lending, are not joined at the hip with all equities.
They may correlate similar, or often inverse. They can be a totally different animal and perform as per their class of risk and exposure .
While the fixed portion of your private bonds might be considered as income (during their short lending cycles), if you have 20-30% of your allocation in bonds, and you use various means and terms to diversify your private bonds.... you have diversified a portion of your bond portfolio. Just as you do with your treasuries.
I guess we could create C-D rule # 38956 that would define what the split is in your bond portfolio for income vs. Bond allocation, as your LT treasuries could be defined as income.
I am comfortable with my choices (which are not everyone's choices). But they are viable choices to diversify my bond (equivalent) holdings.
private lending risk will soar with a recession or depression , are you trying to tell us other wise ?
credit risk as well as defaults are linked to the business cycle .
they are stock like in that regard and do much better in prosperity as well as have far lower risk in prosperity .
i would rather own equities that being the case.
all bonds and bond funds can be sold and rebalanced in to the assets that fell the most .. so bonds are not just an income stream …they are highly liquid investments that can be sold , spent or reallocated and traded for other assets when the time comes .
but my main objection with your list is they are highly tied to prosperity which is only one of the major four economic parts of the business cycle.
reits are highly wishy washy …when mortgages and inflation get to high they stink and when recession and depression drive rates lower they take a beating and stink .
even mortgage reits suck in that environment as refinancing makes the payments expected greatly reduced.
so there is a small window where they can do well unlike treasury bonds which can soar in a recession or depression
Last edited by mathjak107; 09-10-2023 at 03:14 PM..
it is to easy to think you are diversified but what you own ultimately is linked to just prosperity
these Factors that lead to poor diversification.
While stocks may have impressive gains over certain periods of time, there is no guarantee that they will perform well on your particular timetable. Any asset can go into a bad market for extended periods and stay there for years.
A strongly diversified portfolio should assume that the future might not resemble the past and hold a balanced allocation that will position the portfolio well for whatever the future may bring.
Portfolio held assets that ultimately were exposed to the same types of risk
During the 2008-2009 crisis, all stocks dropped, including many bond funds.
Strategy was designed based upon false assumptions about asset class correlations
Simply relying upon historical asset class correlations is dangerous because many asset class correlations do not explain why the correlations exist, and what might cause them to change in the future. E.g. the correlation between stocks and bonds in the
1970s was 0.51
1980s was 0.32
1990s was 0.54
2000 to 2009 was -0.83, and
40-year period from 1972-2011 was 0.06.
Assets move for very specific reasons having to do with what is going on in the overall economy, and not what each other is doing as asset class correlations assume. Stocks do not go up because bonds are going down, and vice versa.
Strong diversification is not built by looking at asset class correlation data. Build strong diversification by looking at the underlying causes.
Understand how different assets respond to changing economic conditions.
Portfolio held no hard assets
Hard assets are subject to different market forces than paper assets.
In some economic conditions, hard assets are the only component that can provide protection from serious losses when currencies, stocks, and bonds are all performing poorly.
Portfolio had little or no cash reserves
During a market crash, a cash allocation can provide a source of funds that can be used to purchase assets at deep discounts when everyone else is fleeing those assets in panic.
Cash can also provide stability and liquidity to support living expenses and cover any emergency needs.
theory
Four Economic Conditions
Conditions
Prosperity
Deflation
Recession
Inflation
Notes
The four economic conditions (or some combination of them) are the only ones that can exist in a modern economy. In other words, at any point in time, the economy is either expanding (prosperity) or contracting (recession) and the money supply relative to the supply of goods and services is either expanding (inflation) or contracting (deflation).
[My note: There are essentially two variables: economy (strong/weak) and inflation (inflation/deflation)]
It is possible for more than one economic condition to be present. Thus, an economy can be experiencing prosperity with somewhat high inflation, no inflation, or even pockets of deflation.
Economic Condition – Prosperity
Condition
Rising productivity and profits, low unemployment, stable or falling interest rates.
Asset classes
Stocks – Good
Bonds – Good
Gold – Bad, other markets are doing well, inflation is low and stable, gold has no interest or dividends
Economic Condition – Deflation
Condition
Some economic shock (e.g. credit crisis, market panic) sets off a cycle of declining prices (people reduce their spending), falling interest rates (demand for loans dries up), and rising currency value.
Asset classes
Cash – Good
Bonds – Good
Stocks – Bad, corporate profits decline
Gold – Loses value same as other assets, however can do well if inflationary policies are taken and the market anticipates serious future inflation. Can do well if negative real interest rates are present. However real interest rates are often not negative during serious deflation.
Economic Condition – Recession
Condition
This is a “tight money” recession. Central bank elected to repeatedly raise interest rates to help tame high inflation in an economy that is already weak, leading to a recession.
This usually lasts 12 to 24 months, until consumers begin spending again or the economy adjusts to a lower level of overall demand.
Asset classes
Cash – Good, can purchase assets at depressed prices
Bonds – Bad, interest rates rising
Stocks – Bad, economy contracting
Gold – Bad, inflation is slowing down, stopping, or coming back down.
Economic Condition – Inflation
Condition
Too much money circulating in an economy relative to the available supply of goods and services. Prices go up, accompanied by rising interest rates because lenders demand higher returns on borrowed money to compensate for the reduced purchasing power of future dollars.
Wage-price spiral
Too much currency in circulation
Currency worth less. Business costs escalate
Prices go up to compensate
Workers can buy less, so they demand higher wages
Process repeats
Asset classes
Gold – Good, value of currency dropping
Bonds – Bad, rising interest rates
Stocks – Tread water, often match inflation growth
Cash – Bad, high inflation destroys purchasing power
Taking more equity-linked risk increases returns over long career accumulation periods and buying annuities in retirement increases the ability to draw cash out without the risk of going below zero?
What will they figure out next, that the sky is blue?
Only downside is of course that adding in the annuity strategy guarantees that future generations get $0 on that part of the allocation.
Location: Was Midvalley Oregon; Now Eastside Seattle area
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Everything is dynamic.
Quote:
Originally Posted by Lizap
I agree. SPIAS should not be considered an asset and should be only used to generate income. I don't know much about GLWBs, but I don't know why you would buy them and not just CDs. The highest paying GLWBs that I've seen are not that highly rated (i.e., Comdex scores).
Annuity companies won’t and can’t sell you GLWB Variable or Fix-Index what we bought in 2008, 2012 and 2018 on the terms and conditions of those times.
We’ve terminated 3 GLWB Varibles because the economic conditions have change.
Other choices for Today: CDs for up to 15 mo. MYGA up to 5 years.
Quote:
Originally Posted by mathjak107
a glwb usually comes as the final option for annuitizing a variable annuity .
so you start with a variable annuity in investments , when you reach retirement that is the deal you get when you convert those investments to an income stream
a way to costly , inefficient, overly complex way of buying an annuity income stream in my opinion.
few who buy them actually understand their deal.
by the way , congrats on your moderator role ….
As I said earlier, creditable understanding of how GLWB work and your personal situation, make annuity work well. We have killed 3 GLWBs and if the stars align we could kill another two.
From what I saw of either types of GLWB just prior to 2020, they wouldn’t work for us.
We are comfortable with our risk exposures and rising income for the next 3, regardless to any economic hits.
Ymmv
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