In today’s conversation, I sit down with a legend in the world of finance, Mr. Roger Ibbotson himself. In 1977, Roger published the first edition of Stocks, Bonds, Bills, and Inflation, a collection of historical returns dating as far back as 1926 – in a sense, he was ahead of his time as no one had compiled this historical market data all in one place before, in a way that was easy to understand. Based on the positive response from this landmark study, he founded Ibbotson Associates in the same year which he later sold to Morningstar in 2006 for $83M. Roger is currently Chairman and CIO at Zebra Capital Management and he has also served as a Finance Professor at the Yale School of Management for 30 years.

Today we dive into his most recent work, a whitepaper titled “Fixed Indexed Annuities: Consider the Alternative.” In it, Roger examines how today’s historically low interest rates and bond returns are putting many retirees in danger of not producing enough income from the fixed portions of their portfolios through retirement. He gets into the biases both consumers and financial advisors often have when they hear the word “annuity” and why his math shows that fixed indexed annuities may prove a viable alternative in many retirement portfolios.

 

Here are a just a handful of the things that you’ll learn:
  • [05:18] Roger’s story on how he built a database in 1977 that ended up becoming Stocks, Bonds, Bills, & Inflation and launched his company Ibbotson Associates.
  • [11:32] Why it’s so crucial to shift your clients’ portfolios away from market based returns as they approach retirement age and how the industry standard bond/equity mix might not be the best answer in the future.
  • [12:24] Reasons the bond market has become less and less appealing over the last several decades as a way to de-risk portfoliosand what to do about it.
  • [34:08] Why many clients expect markets to continue to behave in the future as they have in the past – whether that’s the current bull market and believing the market will continue to go up forever or a bear market similar to the financial crisis of 2008 and 2009 where investors are permanently scared to safety.
  • [44:45] how bond performance since the Jimmy Carter days has been similar to Michael Phelps swimming with the current and the challenge of creating bond yield in an increasing interest rate environment. I promise this will make you laugh!

SHOW NOTES:

  • [09:46] Why the markets became volatile again – and the impetus for Roger’s whitepaper.
  • [10:58] What makes human capital almost like a bond – and the reasons young people should load up on equities.
  • [14:29] Why there’s a stigma in the industry around annuities when it comes to asset allocation.
  • [15:51] The two forms of indexed annuities – and why fixed indexed annuities are a potentially great retirement asset.
  • [18:09] How even treasury bonds can show returns as low as -5% as a result of changing interest rates.
  • [20:25] The reasons fixed interest annuities have better risk characteristics than bonds.
  • [29:62] The surprising numbers Roger discovered when looking at a variety of mixed portfolios.
  • [32:54] Why right now is an especially bad time to buy bonds – and the reasons to consider fixed interest annuities instead.
  • [34:08] The irrational reasons that so many clients expect markets to continue behaving exactly as they have, despite hundreds of years of volatility.
  • [39:06] The reasons you need a trusted advisor to work in your best interests – and not just on commission.
  • [42:07] Roger outlines the dangers of investing in bonds as a way to de-risk your portfolio.
  • [43:45] Why investing in bonds is a little bit like swimming against the current.
  • [46:16] What Roger did before he founded Ibbotson Associates.
  • [47:56] Roger shares his first memories of money – and the first stock that he bought, with his father’s help, when he was 16.
  • [50:46] Who Roger thinks of when he hears the word “successful.”
  • [52:48] Why Roger avoided hot stocks – and instead chose “cool” ones – to build the Zebra Index.
  • [53:48] The new book Roger is writing right now – and how popularity can tie virtually any two things together.
  • [55:39] Why Roger thinks it would be absurd if bonds outperformed stocks over the next 25 years.
  • [58:44] How being a part of academia has proven key to Roger’s success.

SELECTED LINKS FROM THE EPISODE

PEOPLE MENTIONED IN THE EPISODE

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TRANSCRIPTS

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DISCLOSURE

This is provided for informational purposes only. Producers are ultimately responsible for the use or implementation of these concepts and should be aware of any and all applicable compliance requirements​. Results from the use of these concepts are no guarantee of your future success.

Although, we consider “Fixed Index Annuities; Consider the alternatives” to be reliable, Advisors Excel cannot guarantee the accuracy and completeness of the whitepaper.