Interest Rates

Interest rates represent the cost of capital or what you pay to borrow money. A detailed definition of interest rates is beyond the scope of this glossary. What is important to remember is that interest rates are critical components of virtually every financial product you consume. This is especially true with annuities because, in general, insurance companies manufacture annuity products through a combination of bonds and derivatives. As a result, interest rates are the raw material of all annuity types.

Buffett Positioning Berkshire Bond Portfolio in Light of Inflation Concerns

Bloomberg reports that Warrenn Buffett is shortening the duration on Berkshire Hathaway's fixed income holdings. Twenty one percent of Berkshire's bond holdings are short duration and due in less than one year. This represents a 3 percent increase from eighteen percent on March 31 of this year, and a 5 percent increase relative to the second quarter of 2009.

PIMCO's Bill Gross Sees Higher Real Interest Rates

Bill Gross is the manager of the world's largest bond fund at PIMCO. Gross believes that "bonds have seen their best days" and that both inflation and real interest rates are headed higher.

Retirees at Risk in Ultra Low Interest Rate Environment

In a recent op-ed piece in The Wall Street Journal Charles Schwab highlights the fact that the vast majority of retirees in the U.S. are suffering in the current low interest rate environment. The paltry returns on savings--the average rate on a one year CD is 1.3 percent--are 76 percent lower than even four years ago.

Demographics and Longevity Risk

The CFA Institute recently published an interview with Amlan Roy in the March/April issue of CFA Magazine. Amlan Roy is the head of global demographics and pension research at Credit Suisse in London.

Low Interest Rates Provide a Favorable Environment for Wealth Transfer and Estate Planning

In a recent article, Wall Street Journal columnist Jason Zweig discusses estate tax planning strategies that are especially attractive given the current low interest rate environment. Zweig discusses the ability of parents to loan money to children for nine years at a fixed IRS determined interest rate (currently 2.63 percent).