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When stock and bond markets get volatile, many investors look to move their money into less uncertain areas.
That can be a risky strategy, as typically a steady investment plan avoiding knee-jerk reactions to sudden market movements pays off in the long run. Still, there are times or opportunities where an investor wants to put money into an area less influenced by short-term market movements.
Cash?
Often that means shifting into cash. But, depending on where interest rates stand, that may not offer much of a return. Over the last decade or so, interest rates have been relatively low, making average returns for money market funds and savings accounts less attractive compared with typical returns in other markets.
Interest rates did rise recently as the Federal Reserve tried to battle a spike in inflation. That helped cash accounts earn more, but only for a short amount of time as interest rates have gradually come down.
Continued tugs of war over interest-rate policy are likely in the coming years, making returns on cash-based accounts unpredictable. (Learn more: How interest rates work and affect you)
Commodities?
Commodities are another option that investors sometimes look at to get away from stock and bond market volatility. Similarly, real estate and collectibles are in the alternative mix as well.
But history has illustrated dangers in these areas too. Real estate prices were roiled in the 2008 recession. Oil and other commodity markets are subject to persistent volatility as well. And collectibles can have their own ups and downs.
Crypto?
In the last few years cryptocurrencies have crept into the world’s investment mix. But many investment professionals advise against them.
“In terms of cryptocurrencies, generally, I can say with almost certainty that they will come to a bad ending,” famed billionaire investor Warren Buffett said in a television interview.
What are the other options for taking money off the market table, but still having it produce a return?
Life insurance and annuity options
Life insurance and annuities are possibilities and yes, this is coming from MassMutual, a company that issues these products. Still, these are alternatives that could be attractive for some people.
For those people who need life insurance protection, whole life policies can also build up cash value over time at a rate guaranteed by the insurance company and offer tax advantages. And there’s the possibility for dividends, which can be taken out as cash or reinvested in the policy itself. (Learn more: Whole life insurance: Balancing protection and accumulation)
However, there are risks as well. Dividends aren’t guaranteed and tapping into the cash value of a policy can reduce its value and death benefit, as well as increase the chance it will lapse or bring a tax liability if the policy terminates before the insured’s death.
Similarly, there are advantages and possible risks for annuities, which can provide tax-deferred savings and guaranteed income for retirement. Some annuities offer guaranteed interest rates and protection from market volatility.
But there can be inflation risks and taxation or survivorship consequences, depending on how they are used. Also like all insurance contracts, annuities need the backing of a strong issuer (Check out MassMutual’s financial strength here).
Investors looking at life insurance or annuity options may want to consult a financial professional about their individual circumstances.
Discover more from MassMutual…
Winning with a steady investment strategy
Life insurance: Treat the cash value with care
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