If the historic low rates have turned you off of guaranteed interest accounts, you’ll be happy to know that there are alternatives, such as investing within a universal life policy. Here are some investments to use within these policies.
Guaranteed Market Indexed Accounts
GMIAs are similar to market-linked GICs or principal-protected notes. This means you can participate in the upside of an equity index, but with the security of knowing returns will never be negative. And gains from previous years are locked in until maturity.
These accounts are ideal when you don’t need to outperform the market, but want to beat inflation and have guaranteed annual returns. They can also help you reach your goals without the risk of losing everything when markets drop. Most importantly, these accounts work well in a low-interest-rate environment, because as bond rates increase in yield, market participation in the upside increases without any lag.
Pooled mortgage funds have low correlations to equity markets, and provide you with both capital preservation and moderate to high rates of interest by investing in a diversified portfolio of commercial mortgages.
Ideally, mortgages are oriented toward commercial properties in major urban markets. They typically carry higher interest rates and are paid off with 12 to 18 months. Investors earn much better returns than traditional GICs — about 6% to 9%. And while they’re not guaranteed, they’re generally stable.
As their name suggests, these Exchange-Traded Funds (ETFs) are less volatile than others because they’re built on holdings that are less sensitive to market swings. High-volatility stocks are struck off the list, and those that remain are weighted based on their sensitivity to the market, with lower sensitivity names getting a higher weight. This changes the ETF’s risk and return profile relative to the broad market. With less steep downturns, it doesn’t require as much positive returns to bring you back up.
Low-Volatility Market-Indexed Accounts
Sometimes you need to give up upside in order to minimize the downside. Major losses magnify the subsequent upswing needed just to return to pre-loss levels.
Low-volatility market-indexed accounts serve this purpose well. They’re linked to equity markets for growth potential, with a risk management overlay that consists of exchange-traded short futures contracts. This manages your equity exposure by minimizing losses during major market downturns.