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You Can Come Up Empty Handed When Reaching for Yield

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By ภาคภูมิ ปัจจังคะตา @ Adobestock.com

The Wall Street Journal recently gave readers four examples of areas to pick up yield as alternatives to money market accounts or CDs:

  1. Multiyear guaranteed annuities
  2. Defined-maturity ETFs
  3. Preferred stocks
  4. Exchange-traded debt

Your Survival Guy would not recommend a single one of these. Here’s what the WSJ had to say about annuities:

MYGAs, as these fixed-rate annuities are known, can be a good option for savers who are looking for returns comparable to those on certificates of deposit but for longer periods. In addition to competitive rates, MYGA earnings aren’t taxed until the money is taken out.

Terms range from two to 10 years, and unlike other annuity products, buyers can invest as little as $2,500. For example, as of Feb. 14, ImmediateAnnuities.com listed a $10,000 five-year MYGA from A-minus-rated Liberty Bankers Life for 5.4%, above the 4.6% top rate for a five-year bank CD listed on Bankrate.com.

James Sahagian, certified financial planner and managing director of Ramapo Wealth Advisors at Steward Partners in Ramsey, N.J., says these high rates spurred him to buy more fixed-rate annuities in the past year than he has in the 25 years he has been a financial adviser.

But they aren’t for everyone and there are risks potential buyers should know about.

First, these are insurance-company-backed products and not covered by the Federal Deposit Insurance Corp. Before buying these annuities, then, advisers say that investors should check the insurers’ ratings and recommend that they stick with insurers rated A-minus or above. Ratings can be found on the different ratings firms’ websites, such as A.M. Best, or through many states’ insurance regulators.

Second, like most annuities, these products are illiquid and may have stiff early-surrender charges that eat up anywhere from 5% to 8% of the value. Buyers should invest money they don’t need to access immediately.

Your Survival Guy has been warning of the risks of annuities for years. Read more about that here:

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Action Line: Protect yourself from the temptation of going with the flow. Investing success hinges as much, if not more, on what you don’t do. Let’s talk.

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E.J. Smith - Your Survival Guy

E.J. Smith is Founder of YourSurvivalGuy.com, Managing Director at Richard C. Young & Co., Ltd., a Managing Editor of Richardcyoung.com, and Editor-in-Chief of Youngresearch.com. His focus at all times is on preparing clients and readers for “Times Like These.” E.J. graduated from Babson College in Wellesley, Massachusetts, with a B.S. in finance and investments. In 1995, E.J. began his investment career at Fidelity Investments in Boston before joining Richard C. Young & Co., Ltd. in 1998. E.J. has trained at Sig Sauer Academy in Epping, NH. His first drum set was a 5-piece Slingerland with Zildjians. He grew-up worshiping Neil Peart (RIP) of the band Rush, and loves the song Tom Sawyer—the name of his family’s boat, a Grady-White Canyon 306. He grew up in Mattapoisett, MA, an idyllic small town on the water near Cape Cod. He spends time in Newport, RI and Bartlett, NH—both as far away from Wall Street as one could mentally get. The Newport office is on a quiet, tree lined street not far from the harbor and the log cabin in Bartlett, NH, the “Live Free or Die” state, sits on the edge of the White Mountain National Forest. He enjoys spending time in Key West (RIP JB) and Paris. Please get in touch with E.J. at ejsmith@yoursurvivalguy.com To sign up for my free monthly Survive & Thrive letter, click here.

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