The Cost of Waiting

Uncertainty may lead to a wait-and-see investment strategy.

By Matthew DiGangi, head of annuity distribution at MassMutual Strategic Distributors

Floridians are used to unpredictable weather. In the week preceding September 28, they were caught in the grip of uncertainty. How big would Hurricane Ian be, where would it make landfall, what category would it become? I know because my family and I live in Florida. As it turns out, we were not in Ian’s sights. But our hearts are with the more than one million people in southwest Florida as they work to rebuild their lives. Generally, hurricane season is over in October. This year, Florida was hit by Nicole, a rare November hurricane.

Financial markets are posing another type of uncertainty creating significant anxiety beyond the usual ups and downs. Rising interest rates, particularly the most recent one, seem to have perpetuated their own brand of concern. Now there’s a move from bonds to Treasuries in anticipation of increases coming. How many more interest rate increases are coming down the pike? Will the U.S. economy move into recession? If so, when?

Now let’s consider uncertainty in the rest of the world. There’s a massively destructive war in Ukraine amidst ongoing Russian threats, the resignation of the UK’s Prime Minister and UK’s shaky economy, inflation rates in many nations. These are just few at the top of my mind.

Over the past 18 months, even before the Federal Reserve made its first interest rate move, we’ve been discussing uncertainty and what to do about it. In November, I wrote an article about the record-breaking sales of fixed annuities and how they can help mitigate the dramatic ups and downs of the financial market that are largely being driven by interest rate hikes.

I hope we can all agree that today seems very different. There’s an unmistakable air of unpredictability and a noticeable increase in the speed of change. I think it’s time we start talking about more than rising interest rates and their effect on bonds. Consumers are looking at their investment portfolios and seeing something many have never seen before. Both stocks and bonds are down. Pretty significantly. So, what do we tell consumers to do?

Here are a couple of options. We can tell them to park their money in a 6-month Certificate of Deposit and wait. This option is based on a prediction that interest rates will go higher. In my view, this option requires a working crystal ball and a belief that it’s possible to determine world events. This is an even more dangerous belief than the idea that anyone can time the markets.

Let’s return for a minute to the possibility of a recession in the U.S. If it happens, the Fed will most likely start loosening fiscal policy. Is it possible to time the crest of interest rate increases?

It’s doubtful.

Here’s another option. Let’s say a consumer has $300,000 in cash. I suggest a laddering strategy — with 3-, 4-, and 5-year durations. By spreading out the durations, the client has spread out the interest rate risk and is no longer trying to time the market. By using an annuity, they are also deferring taxes on non-qualified accounts, leaving that interest earned to benefit from compounding. Let’s use the MassMutual Stable Voyage Product as an example of laddering.

All rates are subject to change and are effective November 11, 2022. There are no annual fees with Stable Voyage and surrender charges will decline after the first three years.

The only certainty appears to be that we have a lot of uncertainties to contend with.

If you look back over the Fed’s actions over the past 30 years, the tendency is to overshoot the target. If we do enter a recession, when will the Fed begin to lower interest rates? I believe our best course of action during these times is to avoid predicting and help our clients prepare.


This material does not constitute a recommendation to engage in or refrain from a particular course of action. The information within has not been tailored for any individual. The information provided is not written or intended as specific tax or legal advice. MassMutual, its subsidiaries, employees and representatives are not authorized to give tax or legal advice. Individuals are encouraged to seek advice from their own tax or legal counsel.

The product and/or certain features may not be available in all states or with all distributors.

1 Any guarantees explicitly referenced herein are based on the claims-paying ability of the issuing insurance company. 2 Purchase Payments of $100,000 or more may earn a higher interest rate. 3 Contract owners in Florida who are age 65 or older at contract issue, and contract owners in Montana with a contract issue date after 1/1/2018, may only choose the one-year guarantee period as a renewal option. MassMutual Stable Voyage (Contract Form #SPFA11.1, SPFA11.1-Rev, and ICC13-SPFA11.1 in some states including NC) is a single premium deferred fixed annuity contract issued by Massachusetts Mutual Life Insurance Company, Springfield, MA 01111

© 2022 Massachusetts Mutual Life Insurance Company (MassMutual), Springfield, MA 01111-0001. All rights reserved. SDP5024                                                                                                  MM202512-303713

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