An Illinois Registered Investment Advisor                     
141 Fernwood Dr. Glenview, IL 60025 : Phone (847) 686-4800 
January 31, 2019

Dear Family, Friends and Clients,

We received our Illinois insurance producer license in December 2018. What this means for you, our dear client, is we can sell life insurance, along with Long Term Care (LTC) and fixed annuities.

While we're currently licensed in Illinois only, the cost of registering in other States is remarkably low.  For our clients in Nevada, Wisconsin, Colorado, Pennsylvania, Indiana, & Kentucky, we would be happy to provide a quote from among 60 highly rated insurance companies. We have remained stubbornly independent, and are not held "captive" with any particular company. Please call us at 847-686-4800 for more details. 

An Asylum for Widows ^ (and divorced)

It is of the utmost importance to understand why we decided to add one of the most controversial and misunderstood financial products to our service line. Annuities. We had a saying on the trading floor;
"We mock that which we do not understand".
Everybody is talking about interest rates, bond funds, yield curves and the massive-debt-bubble-global-time-bomb-about-to-explode. But nobody explains what it means for retirement portfolios, and why the only solution comes in the form of an annuity offered by an insurance company.

Historical Perspective

When President Jimmy Carter passed the baton to President Ronald Regan, we had rampant inflation. The 10 year US Treasury note was 15.58%  in 1981 with Paul Volker as head of the Federal Reserve.  Many retirees look back fondly at that time and wish interest rates were that high again. Be careful what you wish for because you just might get it.

A multi-generational low was made in the 10 year US Treasury rates in the Fall of 2016 at 1.33%. A decline of 91%. You can see by the looking at the chart below, for the first time in almost 40 years interest rates broke its bearish trend line.  In other words, we have two or three generations who have never experienced a bear market in bonds. This affects every investor holding Target dated funds in their 401(k).
(chart courtesy of Worden)
Most vulnerable of course are those in retirement, especially widows and divorced women who are relying on the safety of fixed income mutual funds to pay monthly expenses.   

If interest rates stay the same or begin a slow and steady rise over the next 10-15 years, the only product that can offer a safe and secure guaranteed monthly income "paycheck", with virtually no risk of loss, is a Single Premium Immediate Annuity or Fixed Income Annuity. 

There, I said it. Annuity.  A bolt of lightning did not strike me dead! Should interest rates slowly increase, "safe and stable" bond funds could suffer massive declines in value.

The biggest threat in the next decade would be if bond fund losses greatly exceed the annual income derived from a "safe" portfolio, thereby making investors big losers on as much as 40% or their portfolio. This doesn't make for an optimal retirement.

The Vanguard Intermediate Bond Fund ( symbol: BND, 2.72% annual yield) is one of the most widely held bond funds with over $203 billion dollars of assets under management. The fund has a "6 year duration", and could decline by over -46% if interest rate increase a paltry 0.20% per year over the next 10 years. This includes the 0.05% annual management fee of the fund. 

The column in light red  tracks the yield of the bond fund. The far right column in red calculates the anticipated decline in value of the bond fund.  Yes, you might be wishing for higher interest rates to collect more annual income, but the net worth of millions of investors could suffer a life altering setback if they revert back to levels from the late 1990's or early 2000's.

Annuities provide a near zero loss to the downside; in exchange for limited participation to the upside and a guaranteed income credit.

The only risk is the financial health of the insurance company not being able to make the monthly payout. 

I'll go into more details in the weeks to come, after our Form ADV disclosure brochure has been updated, but I firmly believe these products are the answer to a multi-decade, rising bond market for a portion of your assets.

I see my own parents in their mid-eighties struggling to  secure a consistent monthly income outside of  social security. My Dad, is continually trying to reach for yield. Pass this newsletter along to anyone you care about because if there is a crisis looming over the horizon, this is it. 

Contact us to discuss to determine if these products are appropriate for you. We are working through an independent insurance organization, and will have at our disposal approximately 60 insurance companies.

If your clients are asking about Long Term Care, Life Insurance or the concept of a guaranteed monthly income to diversify a "safe and secure" bond portfolio sounds interesting let's have a conversation. Call our office at 847-686-4800 to schedule a free portfolio analysis.

Respectfully submitted,

Bill Ulivieri

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Cenacle Capital Management is a State of Illinois registered investment advisor.   IARD 130804

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