Blanchett: People donít realize that cash is risky. You think of cash as being a safe investment, but if cash is yielding nothing and inflation is 2.5% to 3%, youíre losing money every year; itís a guaranteed loss over time. If youíre thinking, how do I reposition my assets? Should I look at bonds or annuities? I think either can possibly work. Itís important to note that annuities are priced based upon mortality and yields, so people complain today that bond yields are very low, and so are annuity yields. When I think about what annuities work best, it seems like deferred income annuities that hedge against that longevity risk, but I would say right now, if someone were to ask, 'Hey, David, what do I do? Do I buy an annuity or do I buy a bond?í I might be tempted to say, buy the bond, then possibly buy the annuity in the future if you want to hedge away that risk.
Roth: When markets do their thing it feels really comfortable to be in cash, but youíre guaranteed to have half the spending power in 20 years by staying in cash. With annuities, on the other hand, the payment is not income ó thatís an illusion. Most of it is the return of your own principal. Itís like buying a bond with a duration for the rest of your life. Itís very long term so that, if rates rise, youíre going to see inflation go higher and that payment is going to become less and less each and every year.
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