These days retirees and investors are faced with a big challenge. The sagging economy is characterized by volatile markets, low oil prices, dollar and interest rate at its lowest and high unemployment.
We have not seen this situation for a long while.
Those who owe money love the low interest rate. It’s good news for the housing industry and business borrowers, but bad news for investors. Investors are beginning to wonder when the good return on investments will come back.
GICs and bond funds in the bank are not giving the returns we want and options are being sought to secure safety of cash rather than hiding them in shoe boxes and under mattresses.
It may console you to know that insurance companies offer products that can be part of a solution so investors can sleep better at night. They offer a good selection of investment products you cannot get from the bank.
One of the popular ones being used lately is the segregated funds, which unlike mutual funds, offers guarantees and can only be bought from insurance companies. These type of funds gives guarantees at maturity or death, either at:
- 75% guarantee on the return of the principal at maturity and 75% guarantee at death (75/75);
- 75% guarantee at maturity and 100% maturity at death (75/100); or
- 100% guarantee at maturity and 100% guarantee at death (100/100).
These returns apply even when the market is down.
With the 100% guarantee at maturity or death, you are guaranteed not to lose your principal, with a minimal fee called Management Expense Ratio (MER). MER fees pay for this guarantee, the cost depending on the type of guarantee you prefer.