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[music] Peter, good to see you. Welcome back, everyone. Let’s get into the weeds today. Are bonds still the best way to manage risk in today’s market? For decades, bonds have been the go-to investment for balancing risk in a portfolio, but with inflation still high and interest rates potentially moving higher, many investors are wondering if traditional bonds are still the best option. And Peter, I think a lot of us are familiar. You know, we’ve been told decades that stocks are for growth,
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bonds are for stability. What’s changed? >> Well, I think that we have seen more volatility that correlates with the stock market in the bond market. So that thought that they offered more stability or stability against losses at all has really been called into question because we have seen several times over the last 2025 years that they have not. uh during the dotcom bubble, during the great recession, during 2022 when interest rates were rising all year, we saw bonds, specifically bonds, bond funds,
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the fixed income side of the portfolio, uh take a hit and 2022 was like the worst year on record for bonds and fixed income. So it really al along with the fact that they have not offered the stability that sort of had been expected. The fact that alternatives are showing that they can offer some of that stability and maybe give us a little bit more upside potential I think is really where we say, you know, are bonds the go-to for that stability component like they once were? I think they still play
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a part in a portfolio, but but maybe not the 6040 mix that we once thought, you know, the majority of the portfolio would move to, >> right? And and you touched on this, but just to kind of explain it in a different way, it used to be that it was almost like a seessaw, right? If bonds were up that so that there was some balance with that, but in 2022, as you mentioned, both were down. We see that in the 6040 portfolio, that deep red line in 2022, and you mentioned a few more. So explain what was happening
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again that took so many investors by surprise and and again a big financial hit too. >> Well, and it probably shouldn’t have taken investors completely by surprise because the Fed gave us pretty strong indications on what they were planning and intending to do, which is to raise interest rates to help control the inflation that was running away at that point in time. And in a rising interest rate environment, bonds and fixed income generally lose value. That part is like a a teeter totter or a seessaw. And the
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analogy that I can give here is if you were in the market to buy a house back when interest rates were like two and two and a half% and your budget was $2,500 a month that you could afford for your mortgage payment. Well, you could buy a five or a $600,000 house, but as interest rates went up, the amount of house that you could buy went down with the same payment. And so bonds kind of function like the value of the home, the value of the home that you could afford went down. the value of bonds as interest rates rise goes down
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because if a new investor is out in the market to buy a bond or a piece of fixed income and they can buy a brand new issued one paying a higher rate then why would they want to buy one of the old ones that’s paying the lower rate. So as interest rates rise, the value goes down. A and investors holding those bonds at that point in time that expected stability and expected safety uh unfortunately did lose value in in those pieces and and really weren’t even making that fantastic an interest rate
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on them in the first place. And and so it was kind of a double whammy. Now we’re kind of trapped and stuck in something that has lost value and we’re also stuck in something that is paying an interest rate from a previous time that was excessively low. >> So let’s talk through three bond alternatives starting with fixed indexed annuities. And it’s interesting that you bring up interest rates, right? Because when interest rates are higher, sometimes annuities are more attractive.
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>> Oftentimes, yes, they are. Uh the the share and the gains of the market, the interest rates that they might pay, the payout rates for income that they would offer. Also, fixed or fixed indexed, both of those do not carry any of the risk of the market. You’re trading that risk for a liquidity and a time commitment period of time. So we do not have the risk at all of market losses. If market goes down, you don’t lose anything in a fixed or an indexed or a fixed indexed annuity. Uh and generally
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they are paying out higher interest rates. So, what we’re seeing now more and more, if you reach into a portfolio that used to have that mix of of equities and bonds for the fixed income, if you pull out the bonds or the bond funds and replace that with a fixed or a fixed indexed annuity, it oftent times lowers the cost to the portfolio, lowers the risk to the portfolio and increases the yield or the income that the portfolio is generating. Mhm. And now our second alternative, structured notes. Let’s talk through how they
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compare to bonds. And if you can start by giving me a breakdown of what a structured note is, Peter, because I think a lot of people aren’t that familiar with them. >> Yeah. Well, there there are different chassis to structured notes, but kind of at its core, they are a a bond like alternative, but they’re linked to some kind of derivative and they can be positioned for either principal protection or income or growth. Uh but but they’re all kind of in encapsulated in this one vehicle, the structured
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note, which is a short-term loan or or could be a little longer term loan, depends on the time frame that you make to a financial institution that is issuing the structured note. And they have tied the performance of that note maybe to uh some kind of index or some kind of interest rate. And you can choose how how aggressive you want to be with it. Do you have any risk of loss? Maybe you don’t want that. So, you would go with a principal protected note or are you willing to take some risk of
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loss and then the income and the growth notes might be more appropriate. And I I do see that there is a place for these. I don’t know if again the the fixed indexed annuity or the fixed annuity or the structured note completely replaces the entirety of the bond, but I do think that they can make a very nice complement that can give us some safety, that can give us some protection and can generally give us higher interest yield within the portfolio. >> And then next we have buffered ETFs. And
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can we again start by just a quick with a quick explainer as to what a buffered ETF is? Yeah, again again you’ve got some uh some some options that are being placed on top of an index and that is what constitutes the ETF and essentially we are limiting some of our upside but also giving us a bit of protection on the downside. So for instance maybe we can make all of the gains of the index that we’re linking to up to a certain point but we give up the gains above that certain point. However, if that
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index instead goes down, we don’t lose anything for the first so much of the downside and then if if it were to continue past that point and continue going down, we would always finish the period at least that much ahead of the index. And so that is a a kind of simplistic definition here. But there are many different indices that these um these buffered notes now tie to. There are some that are, you know, more more growth oriented. Again, there’s some that are shorter term. There are some
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that are longer term. So, there’s a lot of different variations here in what is a a relatively new type of investment, >> right? >> Historically speaking, you know, these have not been around as long as bonds or as long as stocks or as long as mutual funds. Um they are kind of a new breed of ETF that tries to offer some of the best of both worlds. Some upside potential, some downside protection and again can play a role in a portfolio to complement the equity and and the protection side that was pretty much
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exclusively bonds or or bond funds over previous generations. Mhm. Well, Peter, as we record here in late July, there are headlines, right, that interest rates may be on the rise. Of course, I think a lot of people would be concerned about that. Inflation, volatility. With all of that knowledge, how do I know when or if I should make changes to my portfolio? Well, I think it’s a good time to look at that right now because we want to re-evaluate our portfolio from a position of strength, from a
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period where the market has been generous and benefited us, not from a period where we are reacting to a downturn in the market. And we can kind of review and evaluate the positions in and across a portfolio in in several different ways. We’ve got some great great software that’ll dig into the positions. We can run an analysis on it a and basically tell you the risks that you’re taking, the fees that you’re paying, the performance that you have had versus an index. And then we can
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oftent times identify where there might be underperforming positions in a portfolio or evaluate and contrast the risk that is inherent in the portfolio with the risk that you are comfortable with. And those things change over time. So maybe we were on cruise control for a period of time utilizing the options inside of our 401k, but now we’re bringing it right, you know, down to our destination where we’ve gotten off the highway, which is sort of easy easy running and rolling. And we we can’t so
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much just do autopilot cruise control with lane assist once we get on those city streets and and really bring it home to our destination. We’ve got to be a little bit more hands-on with that. And so it does become more important to run those kind of portfolio reviews the closer to retirement you get. Uh and I am concerned when we hear about interest rates potentially beginning to tick back up. That was not a great sign for our economy and for the markets back in 2022. If it happens here again, uh it
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probably will not bode well for for the economy. Hopefully not quite as rough a period as as what we did see in 2022. But again, we started Aaron with that a lot of people were surprised about this back in 2022 when they’re giving us these indications that there are always surprises within the market, but there are also some things that are foreseeable. And the way that the market reacts to rising interest rates is one of those things that more often than not correlates that we’re we’re we’re seeing
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these interest rates rise and the market is not responding favorably. And so we would, you know, be cautious about that. Not to say that we’re we’re in for anything, but again, just an indicator that we should proceed with caution. And right now, a good time to do that evaluation and that assessment of our portfolio to see if there are any things that we we could change or should change or could take advantage of that would be opportunities to better achieve our goals. >> And Peter, if somebody would like to sit
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down and do that with you, how can they get a hold of you? Yeah, you can give us a call at Rashan Planning. Uh, running that review, that evaluation, that assessment is always a complimentary freeof of charge courtesy service that we offer. It’s part of our optimized retirement plan. And all you need to do is uh start the conversation. Give us a call 919-30005886 919-3000-5886. Or you can go to rashplanning.com online. It looks like rich onplanning. It’s my last name.planning.com. Uh we have been voted best of the best
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in wealth management uh by the readers of the news and observer two years in a row. >> You know that Peter, you buried the lead as we say in the industry. Congratulations. >> Yes. Thank you very much. Thank you very much. We’re we’re we’re now uh in the running for the third year. So looking looking hopefully to repeat that title. >> Welld deserved, Peter. Thank you for your time today. >> Thanks, Aaron. Hey folks, Peter Rashan here [music] with Rashan Planning. So glad that you
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