How to realize "guaranteed income+"in the low interest rate environment of "asset allocation series"

Faced with the impact of the COVID-19 epidemic, the Federal Reserve quickly cut interest rates sharply to the level of zero interest rate during the financial crisis. The loose domestic funds also pushed down the market interest rate, and the interest rate of Yu 'ebao fell below 2%. The world has quickly returned to a state of low interest rates or even zero interest rates. At the same time, the yields of most assets are mostly declining.

what impact will the market environment of low interest rate, zero interest rate or even negative real interest rate have on the current family asset portfolio?

how to obtain the guaranteed income?

+how to plan the floating income?

1 "guaranteed income+"has become the basic demand of public financial management

Whether conservative investors or enterprising investors, it seems that their asset allocation ratio and wealth management products are very different, but from the perspective of portfolio construction, they have the same characteristics.

a portfolio can be simply divided into two parts of assets, which undertake different functions respectively.

some assets are mainly composed of assets with small income fluctuation or small withdrawal, such as medium and high-grade interest rate bonds and selected credit bonds, bank cash wealth management products, bonds, certificates of deposit, balance treasure, etc. Although the absolute rate of return of such assets is not very high, the biggest advantage is that the risk is small. The yield of such assets is the guaranteed income of the portfolio.

The other part of assets is mainly composed of those assets with large fluctuations in income and large room for growth. Such as stocks, commodities and even real estate. Although such assets are more risky, they may bring higher returns to investors. This kind of assets is mainly the possible floating income source of portfolio, which is the income of "+"part.

Under the circumstances of falling interest rates, uncertain economic situation and generally weak asset prices, the combination of guaranteed income and+will become the basic demand of public financial management.

in recent years, the overall strong fixed-income products have become the mainstream assets for investors to build guaranteed income, so the guaranteed income+strategy is staged as fixed income+strategy.

the combination construction strategy of "guaranteed income+"is very human. According to the theory of psychological account in behavioral finance, everyone has two psychological accounts, one is to avoid poverty and ensure a basic life, and the other is to get rich. This seemingly contradictory behavior of wanting to be safe and rich is the most real financial need. The combination of guaranteed income+can just meet the expectations of investors, thus becoming the mainstream combination construction strategy.

2 identify the impact of low interest rate environment on portfolio income

the impact of low interest rate environment on guaranteed income+portfolio is mainly in two parts.

first, it has the greatest impact on guaranteed income assets. Under normal circumstances, the guaranteed income assets are mainly interest income. Low interest rates directly lead to a sharp decline in the yield of such traditional guaranteed income assets.

For example, Yu 'ebao was once favored by investors because of its liquidity like demand deposits and 4-5% over-time deposit yield. It has always been one of the first choices for everyone's guaranteed income assets. However, in the environment of low interest rate or even zero interest rate, the 7-day annualized rate of return of Tianhong Yubao Monetary Fund fell below 2%. Holding Yu 'ebao will be weak in helping to achieve the goal of portfolio yield.

Similarly, as a national debt with no default risk, it can obtain a certain rate of return when it is held at maturity, and it is also one of the main sources of guaranteed income in the portfolio. However, in the environment of low interest rate or zero interest rate, the yield to maturity held by national debt will drop to below 1.5%, and its contribution to achieving the target of portfolio yield is also low.

second, the uncertainty of the return rate of floating income assets is increased. Low interest rate, especially zero interest rate, is generally the interest rate policy used by the central bank during the period of sharp economic decline, which itself represents the weak economy. At this time, the risky assets often have poor fundamentals and great fluctuations, so they need to be carefully selected.

on the whole, the low interest rate environment leads to insufficient guaranteed income and uncertain floating income. There are fewer high-quality assets in the low interest rate environment, which is the reason why the low interest rate environment will lead to asset shortage.

in the asset shortage of low interest rate environment, how can we get an ideal rate of return on investment?

There are two main points:

First, in the part of guaranteed income assets, the traditional cash assets are replaced by absolute income products or long-term products.

second, in the part of floating income assets, we should select appropriate risky assets according to different scenarios to obtain investment opportunities brought by low interest rates.

3 how to maintain an ideal guaranteed income in a low interest rate environment?

the requirements for guaranteed income assets in the portfolio are stable returns, small retracement and low default risk, and on this basis, try to obtain a relatively high rate of return.

guaranteed income assets are not necessarily cash assets, as long as they have the above characteristics, they can play the role of combining guaranteed income.

In the low interest rate environment, the advantages of pure cash assets as guaranteed income assets decline.

how to improve the overall rate of return of guaranteed income assets?

There are two main directions:

One is to replace cash assets with absolute income products.

Absolute return strategy generally uses risk hedging tools to hedge most of the risk pairs of risky assets. So as to construct a product with low risk and high income by using risky assets.

because most risks, especially systemic risks, are offset, absolute return assets as a whole show the characteristics of small risk and small retracement. In terms of yield, it is generally higher than cash assets in a low interest rate environment.

this kind of absolute return strategy products mainly include:

(1) funds or fund portfolios that operate with large asset allocation strategies (a portfolio with low volatility and relatively high yield is constructed through models and methods such as mean variance, BL, risk parity, CPPI, DDC). There are common fixed-income products issued by securities firms or endowment insurance assets management, which can achieve an average annualized period of 4% with relatively low risk.

(2) quantitative hedging, which uses tools such as futures options to hedge all or part of the system risks in a quantitative way. Some excellent quantitative hedge funds can obtain long-term average annualized investment income of 7-8% with low risk;

(3)CTA focuses on commodity futures arbitrage, but its capacity is generally limited and its investment threshold is high. It is more suitable for the market environment where commodity prices tend to rise or fall.

one is to replace cash assets with long-term products.

from the time period of several decades, the interest rate level fluctuates periodically. It will not always be low interest rates, nor will it always be high interest rates. The time span of some long-term products reaches several decades, and its annualized expected return is the average level of long-term interest rate cycle. This is equivalent to an asset whose interest rate is locked in advance. No matter what the interest rate falls in the future, this asset will increase in value at a fixed interest rate.

this kind of products often appear in the design of insurance products. Generally speaking, there are several kinds:

1. Annuity insurance

Because the predetermined interest rate is agreed between the insurance company and the customer in the annuity insurance contract, the existence of the predetermined interest rate also makes the annuity insurance have the characteristic of locking the interest rate in advance.

affected by the low interest rate environment, in order to reduce the risk of interest spread loss faced by insurance companies, the upper limit of the predetermined interest rate is currently set at 3.5%, and products with the predetermined interest rate below 3.5% can be directly filed, and products above 3.5% need approval. At present, there are still some historical annuity insurance products with a booking interest rate of 4.25% on the market. Take this part of products as an example. Buying an annuity product with a booking interest rate of 4.25% is equivalent to adding interest at an annualized rate of return of about 4.25% after removing the additional fees until the end of the contract. Compared with the current yield of Yu 'ebao, which has fallen below 2%, the scheduled interest rate of 4.25% is undoubtedly attractive.

however, when allocating annuity insurance, it should be noted that not all premiums will be used for investment appreciation due to the existence of various expenses deducted by insurance companies, so whether the actual rate of return obtained by the final investor can reach the predetermined income depends on the guarantee period, the guarantee period and the actual life span of the insured.

2. Increase whole life insurance

Increase whole life insurance is whole life insurance with compound interest and value-added function. At present, the amount of insurance for increase whole life insurance is generally increased by 3.5% compound interest every year.

As the growth rate of whole life insurance's insured amount is also stipulated in the insurance contract, it must be paid according to the contract, so it also has the characteristics of locking in the return on investment in advance.

It should be noted, however, that unlike annuity insurance, whole life insurance can't get regular cash flow in the form of regular annuity. Therefore, investors who hold increased whole life insurance can generally get supplementary funds by "reducing insurance", or get one-time cash flow through policy loans to supplement temporary capital needs.

3. Universal insurance

Universal insurance is a foreign word.

after the customer purchases universal insurance, the premium will enter the risk protection account and the investment account. From the perspective of protection, universal insurance can be supplemented with life insurance, critical illness insurance, accident insurance and other protection, and the premium of investment account can be used for investment and investment income. At the same time, customers can adjust the insured amount, premium and payment period according to the security needs and financial situation at different stages after insurance.

for the investment income generated by investment in universal insurance, a minimum guaranteed interest rate will be stipulated in the contract, so it also has the function of locking the interest rate in advance. After 216, the upper limit of the guaranteed interest rate of universal insurance will be 3%. Affected by the provisions of Insurance Document No.134 of 217, the initial period and proportion of universal insurance return are strictly limited, and the short-term duration is transformed into security and long-term financial management tools.

if you choose universal insurance as the basic income tool, similar to annuity insurance, you need to pay attention to the cost level of universal insurance, and the guaranteed interest rate is only for the premium after deducting the expenses. Therefore, under the same guaranteed interest rate, the final actual settlement interest rate depends on factors such as expenses and years.

4. Universal Life Insurance

Universal Life Insurance is a kind of life insurance plan with private trust for high-net-worth customers in Hong Kong and overseas insurance markets.

Universal life insurance has the characteristics of high starting point, high leverage and high flexibility, and it is a kind of large-sum insurance policy widely used in wealth inheritance. Universal life insurance generally stipulates a locked dividend rate in the contract, which is between 2-3%, which plays the role of locking interest rates in advance.

4 how to obtain ideal floating income in low interest rate environment?

the floating income part of the "guaranteed income+"combination generally gains a higher rate of return by improving risk tolerance and investing in risky assets.

There are usually the following directions to increase income:

First, "+credit risk", investing in credit bonds, and enhancing income by selecting credit bonds;

followed by "+market risk", investing in convertible bonds, stocks, commodities, and even products such as futures and options.

since the overall rate of return of the guaranteed income has declined in the low interest rate environment, it is necessary to improve the rate of return by improving the tolerance of portfolio risk.

So, is it only necessary to buy a higher proportion of risky assets, and the portfolio yield will increase?

obviously not.

when interest rates are low, the economy tends to be worse. In different situations, the performance of risky assets such as stocks and commodities is quite different. If you buy it at the wrong time, it may bring losses.

therefore, the investment in floating income assets needs to be refined in different scenarios to obtain an ideal rate of return.

according to the changing trend of interest rate, the overall level of interest rate and the trend of economic slowdown, we can divide it into four basic macro scenarios.

Scenario 1: Interest rates are falling continuously, and there is still room for decline. At the same time, the economic growth rate is declining and has not stabilized.

In this scenario, low interest rates are often accompanied by abundant liquidity. When choosing investment targets, funds prefer those assets that benefit from falling interest rates, mainly including bonds and gold, because the economy has not bottomed out and the fundamentals of commodities such as stocks and basic metals are still deteriorating, which are not suitable for investment. In this scenario, these two types of assets often perform well.

it is suitable for increasing holdings of bond funds and gold funds. Reduce holdings of stock funds and commodity funds.

scenario 2: the interest rate has dropped to a historical low, with little room for decline, while the economic growth rate is declining and has not stabilized.

in this scenario, the investment cost performance of bonds is declining, which is not suitable for increasing holdings, but should gradually realize the income. Gold will continue to rise under the impetus of funds and safe-haven demand.

It is suitable to increase the holdings of gold funds, reduce the holdings of bond funds appropriately and realize the income. Reduce holdings of stock funds and commodity funds.

Scenario 3 and Scenario 4: Interest rates continue to decline or fall to historical lows, while the economic growth rate stabilizes and picks up.

in these two scenarios, the demand for safe haven has gradually weakened, and the promotion effect of safe haven demand on gold and bonds has weakened.

from the perspective of investment cost performance, the investment value of stocks and basic metals with low prices is higher. However, the risk-return ratio of gold and bonds with high prices has dropped.

relatively speaking, the opportunities of bonds and gold assets in scenario 3 are slightly greater than those in scenario 4, but the overall opportunities are weak.

in these two scenarios, it is suitable to increase the holdings of stock funds and commodity funds. Reduce holdings of gold funds and bond funds.

what is the current financial environment?

the financial environment at home and abroad is different.

the domestic financial environment is mainly in the state of scenario 4.

in terms of economic growth, February was the lowest point, and it gradually recovered in March. On the whole, it is still weak, especially the external demand has fallen because of overseas epidemics.

in terms of interest rates, domestic interest rates are at the bottom of history. Although it is possible to continue to fall, there is relatively little room for the overall decline of market interest rates.

At this time, A shares have overall opportunities, at least with high strategic investment value. On the one hand, fundamental expectations are improving, and on the other hand, low interest rates and loose liquidity also help the stock price to rise.

It should be noted that there are uncertainties in overseas epidemic situations, and fluctuations in overseas investment confidence will have a certain impact on domestic investment confidence. Therefore, do not increase the overall proportion of A-share assets too quickly.

you can increase your holdings of a-share assets in two ways.

One is an investor with timing ability, who can gradually increase positions on dips and prefer stock funds with preference for blue chips, which is more secure.

one is the investor who can't grasp the timing. It is suggested to set aside a certain position in the part of "+floating income" and share the long-term income by investing in stock funds.

domestic bonds have short-term upside, but the overall upside and probability are small. The value of investment has fallen.

the foreign financial environment is mainly in the state of scenario 2.

The economic growth rate is epidemic in COVID-19 overseas.