An annuity is a series of payments made at equal intervals. Examples include regular deposits at a bank, monthly mortgage payments, monthly insurance bills or regular pension checks. Annuities can be paid out weekly, monthly, quarterly, yearly, or at any other regular fixed interval.
Annuities providing payments for the remainder of a person's lifetime are referred to as a "life annuity." A perpetuity is an annuity that has no end, or a stream of cash payments that continues forever. There are few actual perpetuities in existence, it's honestly more of an idea than a practicality.
You need to consider market conditions when selling your annuity, because in theory at least, annuity payments offer long term financial stability. However, if 2020 has taught us anything it's that life is anything but stable right now. It's always a "fluid situation" so to speak. You need to consider flexibility in the structure of your annuity, and you also need to evaluate the current economic conditions, and that starts by looking at interest rates.
Real interest rates are currently at their lowest since the pandemic started. Real interest rates are defined as the 10-year Treasury bond yield minus the rate of inflation. On Monday, after a huge stock market sell-off, real interest rates dipped to below 1.15%. This rate has remained below 0.75% since July.
With this in mind, should you look at investing in treasuries? After all, nothing is more secure and safe than t-bonds and t-bills.
However, good luck finding any treasuries that pay anything at all. In the secondary market, all you'll find are rates of return hovering around .01% or so. Not 1%, but .01% , and to even get 2% or 2.5%, you would have to pay 9, 10 points over par. This is such a non-option right now that one brokerage house even has a disclaimer on their website, in regards to negative-yielding bonds. It reads:
"Due to current market conditions, you may see bond offers that are priced at a negative Yield to Maturity (YTM). YTM is the annual rate of return assuming a bond is held to maturity and all of the interest payments are reinvested at the original rate. When a security has a negative Yield to Maturity and is held to maturity, the result will be a net loss on the investment. There are very limited reasons you might want to invest in a bond with a negative YTM. Please make sure this order is consistent with your investing strategy."
In other words, treasury securities purchased at auction could be negative resulting in a loss of capital, and investors could realize a negative rate of return. While t-bills are high, most equities are really high right now, and bitcoin is at a record high. Many people consider buying bitcoin right now as akin to gambling because of the cryptocurrency’s volatility.
Bitcoin (BTC) speculating is a lot like investing in an extremely volatile, high risk/reward stock. Going this route depends on how risk averse you are as an investor. Bitcoin definitely won’t cut it as currency; it just isn’t as stable as some major currencies, like Euros, US dollars, and UK pounds. These are all factors to consider when weighing up the decision to buy, sell, or hold annuities.
This article originally appeared on Chicago Now.
