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Why I Bought the Athene Protector 5

By , with Annuity FYI

Why This is a Bad Time for Bond Investors and Why Athene Protector 5 Appears to Be Part of the Solution

As a longtime contributor to Annuity FYI, I am familiar with new annuity products introduced into the marketplace and sometimes evaluate them for possible inclusion in my own retirement portfolio. So, I wanted to share why I recently added the Athene Protector 5 to my portfolio in the belief that it’s particularly germane in today’s investment climate. I expect that my thinking in selecting this product is shared by many prospective annuity buyers and investors in general, for that matter.

Notwithstanding a powerful stock market rally, I believe this is among the most challenging periods for investors in a very long time. The stock market does not rise indefinitely. As investors, we know that it is wise to leverage your exposure to risky stocks, and the preferred investment in this regard has long been high-quality bond mutual funds.

But these are not normal times. With interest rates near zero and virtually certain to stay that way for a long time, I have no desire for bonds. The payout rate for new bonds is pathetic. If you have owned bonds for a while, their value is unusually high – bond prices move inversely to interest rates – and that means they are highly likely to decline over time as the economy slowly improves, pushing rates up in tandem. In this scenario, bond returns would be almost zero and perhaps negative.

Then there is the stock market.

No question, the strength of the rally since last March has been amazing – the vast bulk of losses have been erased. But this is because of enormous fiscal and monetary stimulus. While likely to continue for a while, it will fall off eventually. My concern is that the market appears to be focused too much at signs that the worst of the economic pandemic is behind us and that the economy has begun bouncing back as stay-at-home orders have subsided and consumers start spending again. What the market appears to be blithely ignoring is that business remains very weak and, according to most economists, will remain so at least most of this year.

In nutshell, a V-shaped economic recovery – one that rebounds quickly and strongly – seems highly unlikely. So, earnings, in comparison to what they were a year ago, will largely remain weak.

The stock market P/E ratio is the highest it has been in at least two decades. At best, future gains in the market, with the likely exception of a few top-tier technology stocks benefiting from the pandemic, will be subdued. At some point, the rally will cool. And there may well be another sell-off – and one that won’t bounce back again nearly as quickly.

This brings me to the Athene Protector 5- a solid bet for folks who otherwise would invest in bonds. I’m investing in it because I’m pessimistic about my bond fund portfolio. It’s a five-year play. It invests in two indexes, including one only modestly exposed to stocks, and rebalances a lot to mitigate sharp losses. If the market goes up over time, it will participate, but conservatively. (While the stock market today is unattractive, it is more attractive than bonds.) Best of all, if everything goes south, I will nonetheless receive a highly unusual guaranteed return of 2% a year – an unlikely return for bonds in coming years.

I look at it as a way to substitute bonds with no risk.

All investors want to make money. But the smartest ones want to do so assiduously. Bonds are typically a good hedge against the stock market in normal times, but – again – these are not normal times. So, it’s important to me that bonds are largely absent in the Athene Protector 5.

Obviously, there is no guarantee that the stock market will eventually shake off the pandemic and its economic aftershock. But this is, after all, a five-year investment. In coming years, there is a good chance that things will be closer to normal. This is a scenario that I can live with.

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