Stock and Bond Market Valuation Risk

This graph encapsulates the entire risk of the market in front of us. Bonds yields at a trough after a nearly 30 year bull market. Stock valuations are still a far cry from “cheap”, and in fact they are still considered high relative to history and today’s inflation environment.

Invest in bond funds and you will probably lose. Asset allocation models that are dependent upon protecting principal thru moves to bond funds are very suspect. Invest in stock funds, and the future is not a great bet. In order for stock bets to have long term high returns, interest rates would need to remain low, earnings grow, and price earnings multiples expand.

Fixed index annuities have outperformed variable annuities and other similar equity based product over the past decade. Fixed index annuities eliminate the market risk to principal and allow significant market index appreciation. This market appreciation generally exceeds fixed interest rates over intermediate to longer term time frames. This is why many consider fixed index annuities a new asset class—no principal risk and variable interest returns tied to equity returns.