We are getting used to market volatility. We better, because it is most likely going to be with us for a very long time. In addition to stubborn unemployment, real estate foreclosures,huge deficits and an economy that can't decide if it is recovering or getting worse, we also have the BP disaster, European debt and possible conflicts in Asia.

This combination of concerns has led to a veritable tidal wave of investments in perceived safe havens. In the last month alone, there was over $4.5 billion invested in bond mutual funds.  At the same time, equity funds experienced a decline of $600 million.

When, not if, interest rates rise, the purchasers of these bond funds are going to be very negatively surprised. The value of the 'safe" investments they made is going to decline. This will be particularly  true for those funds that purchase long term bonds.  Increases in interest rates have a much greater impact on long term than on short term bonds. 

Interest rates are at historic lows, they will increase.  Those that moved away from stocks and moved to bonds will likely suffer a double whammy - they already lost money in stocks, and will now suffer losses in bonds.     

We also know that tax rates are going up. We live in a state that is basically bankrupt and our federal debt level is astronomical. 

So, how about places to put money that can only go up and will provide long term deferral from increasing taxes.  There are two financial products that can deliver this features. Fixed annuities are one, but the up side is fixed by the interest rate that the insurance company credits to the contract.

Index annutiies, still relatively unknown to investors, do exactly what we mentioned. First, they credit the account with the increase in an equity index, like the S&P 500. So if the index goes up, so does your account value. Second, if the index declines, this has no effect on your account value. It remains at the same level. 

We have just been through another 10%+ reversal in the major stock indexes. So there is room for gain, but no guarantee. Interest rates are low, so fixed annuities are offering rather low rates.  There is no better time to look seriously at Index products. Many have been improved and now offer features that were not available just a few months ago. One in particular is a guaranteed retirement income benefit.

For a list of the best index products, from the safest insurers, please contact us at anadolna@associatesgroupinc.com