Most news which moves the markets falls in the category of “this too shall pass”, happenings which cause prices to twitch up or down around average returns. It’s always something, and then that’s gone and forgotten. CNBC and most financial media lives on this blah blah blah nonsense. Turn it off and tune it out if you can. Long-term investors ignore those things to more clearly focus on the small and big cycles which drive cost of capital, earnings, and price. Read Howard Marks fine book “Mastering the Market Cycle” for more. But then there are the rare, slow-moving train wrecks which rhyme with history, so may play out differently in future. These trends are in clear view but we cannot solve them overnight. I believe debt level and demographics of many developed economies are like that. Both will affect for many years GDP growth, cost of capital, and shape of future earnings, which all eventually impact stock prices after Mr Market sobers up. So yes, stay the course but also stay clear-eyed about intrinsic value and how that could change over time. Keep a margin of safety when you buy. Price matters.
Recent events and news led me to update this piece with a "hindsight is 2020" comment. We still hold a diversified portfolio of fixed income and equity index funds which is the core of our retirement savings. But in 2020, and again in early 2024, we bought two fixed income annuities to have something independent of our core portfolio for income we could depend on to "top up" our Social Security income, once we start the larger part of that benefit in a few years. What have I learned since writing this piece in 2020?
Inflation is an annuity's biggest sequence-of-returns risk. I picked a 3% COLA for the annuities we own because that's roughly the long-term inflation rate in the U.S. I expect ~3% will still work out well enough if one or both of us live to our life expectancy. But the broad inflation burst in 2021 which followed the pandemic, and today's energy-powered inflation eruption, require me to highlight inflation's risk to annuities during short periods over which the purchasing power from a fixed income annuity will erode somewhat. Conclusion: if you wake up in cold sweats at night whenever you go to bed thinking of inflation, it may be better to buy a TIPS ladder than an annuity (we have both).
Of our two annuities, we bought one as a deferred income annuity, and the other as an immediate income annuity, aka single premium income annuity. A deferred annuity is purchased in year X and starts its income stream in year Y. Deferral should somewhat boost the annuity's income level from the unused investment gains, but the real gains from that future income will be impacted by any inflation bouts between year X and year Y. After the income stream starts, each subsequent year's income is boosted by the COLA amount you choose, but before income starts your future income stream is vulnerable to inflation's corrosive effects. Conclusion: Skip deferred, buy immediate.
We bought these two annuities from two financially strong sources (NY Life and MassMutual), which may have been a wiser move than I expected. This piece in today's WSJ (gifted) suggests some of the less-strong life and annuity insurers now hold portfolios with more risk than they did heading into the 2008-2009 subprime meltdown. In particular, the WSJ writer alleges certain insurers, which were acquired by Apollo Global Management and KKR, have had significant levels of private debt investments transferred to their balance sheets from their parents. Conclusion: choose annuity providers with the highest financial strength ratings. Doing that may still leave you with a very small risk of loss, but likely low enough for most people.
Comments
Most news which moves the markets falls in the category of “this too shall pass”, happenings which cause prices to twitch up or down around average returns. It’s always something, and then that’s gone and forgotten. CNBC and most financial media lives on this blah blah blah nonsense. Turn it off and tune it out if you can. Long-term investors ignore those things to more clearly focus on the small and big cycles which drive cost of capital, earnings, and price. Read Howard Marks fine book “Mastering the Market Cycle” for more. But then there are the rare, slow-moving train wrecks which rhyme with history, so may play out differently in future. These trends are in clear view but we cannot solve them overnight. I believe debt level and demographics of many developed economies are like that. Both will affect for many years GDP growth, cost of capital, and shape of future earnings, which all eventually impact stock prices after Mr Market sobers up. So yes, stay the course but also stay clear-eyed about intrinsic value and how that could change over time. Keep a margin of safety when you buy. Price matters.
Post: Staying Rational
Link to comment from April 18, 2026
Recent events and news led me to update this piece with a "hindsight is 2020" comment. We still hold a diversified portfolio of fixed income and equity index funds which is the core of our retirement savings. But in 2020, and again in early 2024, we bought two fixed income annuities to have something independent of our core portfolio for income we could depend on to "top up" our Social Security income, once we start the larger part of that benefit in a few years. What have I learned since writing this piece in 2020?
Post: Money for Later
Link to comment from April 10, 2026
Shared a few suggestions over email, Elaine. Hope it helps.
Post: Note to HD Writers and Contributors
Link to comment from April 4, 2026