This link – to a recent Wall Street Journal article, suggests that investors might want to consider parking their money in cash. Their rationale emphasizes that right now – stock prices are very expensive – and bond rates are depressingly low.
Why is that a problem?
The stock market part should be obvious – big losses are likely on the relatively near-term horizon. Bond risk is a little more subtle – but no less lethal. In an environment of rising interest rates, existing bonds lose principal value in big chunks. Therefore – the cash recommendation.
The solution is to be invested in instruments that ride the tide of rising interest rates; and at the same time – immunize our money from the risk of falling stock prices.
While that may seem an insurmountable challenge – it is not. It just can’t be accomplished with traditional Wall Street strategies.
Two product categories fit the bill: Annuities, and cash-value life insurance. Annuities earn interest that will float with interest rate movement. Certain kinds of cash value life insurance (not your father’s kind) will grow with the stock market – protected from any downside risk.
Both can be excellent alternatives in the kind of economic climate we’re currently experiencing. The life insurance option is particularly interesting because cash can be accessed tax-free, and the death benefit can preserve a financial legacy for your family. What’s more, the cost of today’s life insurance is probably less than you’re paying in fees/commission to that stockbroker – who’s suggesting “cash.”