Posted by Heidi Palermo on Mon, Jun 4, 2012 @ 11:43 AM

With interest rates at historic lows you would think consumers would be clamoring at the opportunity to expose those idle funds to greater upside potential. But financial analysts tell us there are trillions of dollars sitting on the sidelines just waiting for a ‘better’ opportunity. In speaking with financial advisors across the country every day I have noted that there are three main reasons why consumers are too anxious to commit their funds to a particular investment vehicle:

1. Scared of market volatility – do you think they have their money sitting in a CD because they want to earn 50 bps per year? No. It’s because they simply do not want to lose anything.
2. Waiting for rates to come back up – which Bernake tells us isn’t going to happen until at least 2014.
3. Afraid of long term commitment – they do not want to tie their funds up long term for fear that if interest rates do rise their instrument becomes less valuable over time

What if I told you that you can answer all three of these concerns with products that have NO fees, ZERO risk to principal, and some had returns of 6.20% for the preceding 12 months? If you are thinking it is too good to be true, I am here to tell you it can – and was – done inside of a short, 5 year instrument utilizing bond indices!

Now I know what you are thinking – what will those returns look like in a rising interest rate environment? Well, I think we all concur that interest rates, unfortunately, are not going anywhere for the next two years. Thus I believe there will be consistently strong bond returns for at least the next two years, but then what? There are two points to keep in mind here –

1. We are talking about bond indexes, not a singular bond fund, which means the index is comprised of several bonds from various areas of the bond marketplace (i.e. built in diversification)
2. These are total return indices, so the performance of the index includes the interest from the bonds. In a rising interest rate environment the interest made off of the bonds could support an overall positive return for the bond index that year.

Still not convinced? From 1992 to 2011, Barclays US Aggregate Bond index was negative only three years - that is three out of 20. In other words, there was a positive return in the index 85% of the time. From May 1, 2011 to May 1, 2012 it returned 6.20% - almost exactly double that of the S&P 500. Now that’s an annual policy review any advisor would welcome with open arms.