Dr. Roger Ibbotson -- Why Advisors Should Consider FIA's as a Bond Alternative

In the inaugural episode of the JTalks Podcast, host Jack Martin, strategic marketing consultant and founder of Elite Advisor Group, talks with Dr. Roger Ibbotson about his latest research and why financial advisors should consider Fixed Index Annuities as a bond alternative.

Dr. Ibbotson is an economist and creator of the iconic "Stock, Bonds, Bills, and Inflation" chart. He is Professor Emeritus of Finance at the Yale School of Management. He is a Member and the Chairman of Zebra Capital Management, LLC. We are also joined by John Holmgren who is the President of Zebra Capital Management.

 



 

FULL TRANSCRIPT

Suzanne Lynn:    00:01     Welcome to our JTalks Podcast, where leading advisors find the fuel to drive their Business Alpha. InsurMark is an advisor development organization. This is the next step in our 35 year history of aligning the independent financial advisor with best of breed resources and services, from a dedicated professional team, product partners, technology vendors, practice management leaders, and business development systems.

00:31     Today, Jack Martin, our Strategic Management Consultant and Founder of Elite Advisor Group will be talking with Dr. Roger Ibbotson about his latest research, and why financial advisors should consider the fixed index annuity, a bond alternative. Dr. Ibbotson is an economist, and a creator of the iconic Stock, Bonds, Bills, and Inflation chart. He is Professor Emeritus of Finance at the Yale School of Management. He is a member and the Chairman of Zebra Capital Management, LLC.

01:05     We are also joined by John Holmgren, who is the President of Zebra Capital Management. And now, let's join Jack and Dr. Ibbotson.

Jack Martin:        01:14     Hello, Dr. Ibbotson. Hey, thanks for joining us on the Jay Talks Podcast today. It looks like Yale might win the Ivy League in football again.

Roger Ibbotson: 01:23     Well, I'm certainly hoping so, but I'm not gonna be an expert on that although I have attended a game already, so.

Jack Martin:        01:30     Yeah, so today what we wanna talk about is your white paper. We wanna talk about Fixed Annuities and Bond Alternatives. You started your career as a Bond Manager at the University of Chicago, right?

Roger Ibbotson: 01:45     Yes, I actually managed the bond portfolio at the University of Chicago, and it was a very interesting time. It was a time when bond deals were still rising, but they were about ready to hit their peaks in the early 1980s. And they got into the double digits, so it was an interesting time but not exactly like today, because today's yields are much lower of course. Although we may have the rising yields.

Jack Martin:        02:10     Right. So what's your thinking about where interest rates and the bond market are today?

Roger Ibbotson: 02:16     Well, you know I think they are really low actually, because bonds have actually, yielding around three percent today. And this is after a long drop in yields from the early '80s when they were double digits, falling all the way to three percent, so it's been a time when people historically have really yielded great returns on bonds. Because during that period of drop, they actually had a high yield, plus they actually got a capital gain from the drop in yields, but the way a bond works is, you get the yield and then when the yield drops, you're practically, you're holding the higher yielding bonds and your bonds go up in price. So, people for decades have really realized not only that yield, but substantial capital gains in bonds.

Jack Martin:        03:09     In the title of your white paper, you use the term bond alternatives. So, help our audience understand what that means and why we need to be thinking about those today.

Roger Ibbotson: 03:17     Well, you can see why we might need the bond alternative when you think of today's yields now, because now they are at that three percent, where are they gonna go from here? They're much more likely to go up than down. And if they go up, you end up with a yield plus a capital loss. And so you financially have negative returns on your bonds. So, we need an alternative actually, and that's why we looked at this whole situation because we need to look at some other way of actually taking less risk, at the same time getting a decent return. So we need another way to do this, which we don't wanna have capital losses in our bonds, which we might very well have. We need an alternative.

Jack Martin:       ...