Back in 1990, Dr. Harry Markowitz won the Nobel Prize in economics for his work in asset allocation models in investment portfolios. It was the new era of Modern Portfolio Management, in spite of the work being created and published in 1952! Dr. Markowitz literally wrote the book on asset allocation and diversifying investment risk. Bottom line, owning assets that act independently of each other is extremely worthy.
Investing one’s money into unrelated or better, non-correlated assets is paramount for true diversification. While Harry is considered the father of diversification, throughout the ages we have learned never to put all our eggs in a single basket, whether it is crops or stocks.
Unfortunately there is only one sure thing that increases or goes up in a bear market and that is “correlation.” Surely you saw for yourself how all assets, (even less risky bond funds) including real estate, got hammered in the mass hysteria of the financial collapse in 2008. There weren’t many places to hide safely, other than in cash equivalents or fixed type annuities. Since then, we’ve watched the 10 year treasury yield fall to never before lows; quelling the enthusiasm and returns on both indexed and fixed annuities.
But for a safe haven and respite to wait out this bipolar bear market, what trumps the peace of mind of a regulated financial institution standing firm behind your money? Add to that a state guaranty fund backing up the institution for up to $250,000 per annuitant and owner and you’ve got the solution for many a peaceful night’s sleep. Quite a few newer products were introduced to the market after the 2008 debacle, and now you can find fixed products with short surrender fee schedules and several with no surrender charges and even 100% return of premium riders effective from day one at issue.
Seeking hidden dangers