Buy Fixed
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Buy Fixed
Interest rate fluctuationLike all fixed income securities, CD valuations and secondary market prices are susceptible to fluctuations in interest rates. If interest rates rise, the market price of outstanding CDs will generally decline, creating a potential loss should you decide to sell them in the secondary market. Since changes in interest rates will have the most impact on CDs with longer maturities, shorter-term CDs are generally less impacted by interest rate movements.
a government, corporation, municipality, or agency that has issued a security (e.g., a bond) in order to raise capital or to repay other debt; the issuer goes to an underwriter to get their securities sold in the new issue market; for certificates of deposit (CDs), this is the bank that has issued the CD; in the case of fixed income securities, the issuer of the security is the primary determinant of the security's characteristics (e.g., coupon interest rate, maturity, call features, etc.)
the date on which the principal amount of a fixed income security is scheduled to become due and payable, typically along with any final coupon payment. It is also a list of the maturity dates on which individual bonds issued as part of a new issue municipal bond offering will mature
Fixed price buy-sell agreements are seemingly simple from a valuation viewpoint. All the owners and a company have to do are agree on a value for the business and record that value in their buy-sell agreement. Most of the time, the owners do agree on a fixed price when agreements are initially signed.
If the current value is higher than the original fixed price, the company and remaining shareholders would achieve a windfall with the bargain purchase from a triggered shareholder. However, if the current value is lower than the original fixed price, the selling shareholder would achieve a windfall.
That process is called the Single Appraiser, Select Now and Value Later valuation process. The appraiser is selected and written into the fixed price agreement. If the buy-sell agreement is triggered and the fixed price is outdated, the selected appraiser is called upon to provide the (binding) valuation for purposes of the agreement.
Because inflation can go up or down, we can have deflation (the opposite of inflation). Deflation can bring the combined rate down below the fixed rate (as long as the fixed rate itself is not zero). However, if the inflation rate is so negative that it would pull the combined rate below zero, we don't let that happen. We stop at zero.
Because of the low interest rate environment, finance experts like Dr. Wade Pfau (opens in new tab) and economist Roger Ibbotson (opens in new tab) have recommended that financial advisers and their clients think of FIAs as another asset class, framing them as an alternative to fixed-income investments like bond funds. Dr. Pfau believes that the guarantees afforded by FIAs may be especially beneficial for retirees during volatile conditions, saying that "This protection may make it easier to retire successfully in down market environments."
If they are right, the low-interest piper may be coming to collect because as markets begin to grow volatile, or a correction seems imminent, the fixed income investments most folks would turn to for safe harbor are most sensitive to interest rate risk. Which is to say that interest rates and bond prices have an inverse relationship. With rates so low, bonds may not offer the ability to de-risk as they have in the past.
One of the primary confusions about fixed-indexed annuities is how they earn money for their owners. Folks selling them may sometimes say things like, "They offer equity exposure without any of the risk." It's important to understand that there are no underlying investment options in a fixed-indexed annuity, so there is no actual exposure to equities.
Built to offer better returns than CDs (certificates of deposit), fixed-indexed annuities are a fairly conservative i