Currently rates on CDs and top-quality bonds are still below inflation; they aren’t a good investment. Some 10- to 30-year high-risk bonds are paying 5-7%, but we do not recommend any of those products. Instead, we suggest laddering very short-term bonds if you have a need for fixed-income investments—in other words, creating a bond ladder. As interest rates continue to rise, you can then roll it out over three to five years so your yields keep pace with inflation and market interest rates.
Note that many of our subscribers have foreign currency CDs with EverBank, some of which have a 90-day period. Inflation protection is one of the key goals with those CDs. So if you’re investing in them, break your capital into thirds and ladder your CDs so you have one maturing every month.
Annuities: Another Use for Laddering
Many retirees also use annuities for guaranteed fixed income. We believe annuities have their place under certain circumstances. In general, however, they offer little protection in a high-inflation environment. While some have inflation riders, they come at a cost: lower initial monthly payments or some sort of cap on the increase.
Nevertheless, our frequent collaborator Stan the Annuity Man told me of a client who laddered his total $500,000 annuity purchase over five years as a means of increasing inflation protection. As an added bonus, he was one year older each time he bought the next $100,000 step in his ladder, which gave a boost to his monthly payments.
Laddering can help protect against high inflation, volatile interest rates, and cash-flow problems. It may mean you miss a little income in the short term, but in the long run it adds another layer of protection.
Annuities – with the additional protection afforded by laddering – make sense for many retired people and those approaching retirement age because they can provide a guaranteed income – which can make it a lot easier to sleep at night.
To help you determine whether an annuity is right for you, I put together an easy-to-follow report called The Annuity Guide.
This new report is jam-packed with invaluable information that will uncomplicate the world of annuities and is a must-read for anyone considering one.