Don't Leap into the Volcano
Ronald Granberg Jr.
Chief Investment Officer at Clearwater Investment Management LLC
Don’t be fooled that higher long-term interest rates benefit investment portfolios of life insurance companies.?They don’t, but that’s what life insurance companies assure you of as they invite you to leap perhaps into a volcano.??
The "rate increases are good" groupthink at insurance companies springs from not only the need to hide an overall portfolio of lower-than-normal quality fixed income assets at the top of an asset bubble.
But it also conceals the meager overall portfolio yield harvested from such optimism that 3,000-year lows in interest rates bloomed into negative rates across much of the world as our 10-year US Treasury even visited 0.333% intra-day (0.54% End of Day) on March 9th, 2020.
With long rates declining for 39 years and exhausting that trend dramatically on that March 9th day, we should expect a future of alternating sluggish to impulsive rising rates mixed with required partial retracements.?When long-term interest rates rise, bond prices fall.
Credit risk rivals interest rate risk at Life Insurers and provides another significant headwind compliments of the bubble top.?As lending conditions got loose, the unusually risky low-yielding portfolios were topped off, with incremental yield made available from the riskiest borrowers, borrowing at the top ahead of an economic contraction.??
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The life insurance industry does not present a thriving environment for participating policy owners.?But that won't stop them from telling you otherwise.?
Life insurance companies fail during such times.?And with each insurance company's failure, watch for another.
My humble advice to you: at least wait to make sure the insurance company doesn't go bankrupt before you hand them your life savings.?But even then, it is a stupid idea.
Visit www.ClearWaterInvest.com for more about finding the bottom and more.
Clearwater is a sophisticated investment manager advising a small number of clients.??A no non-sense advisory, who provides thoughtful, non-biased advice and portfolio management. No conflicts of interest.