Bonds Come Up Short:  Case Study February, 2016  In this real life example, a California couple ages 57 and 60 hoped to retire in 5 years.  With an investment portfolio of more than $1,000,000 they expected to be able to live off the proceeds of their investment account, a rental property and social security.  However, like most Americans they hadn’t taken a hard look at their spending or the impact inflation would have on their purchasing power.  To help them understand the impact of inflation on their retirement, the retirement planner assigned to their case first showed them how their income and expenses would change over time due to inflation.

It was a wake up call.  They would have to begin measurably drawing on their investment portfolio to supplement their income by the 5th year of retirement.

They wondered what would happen to their lifestyle if they had to depend on their investment accounts and the market crashed again.

Stock Market Crash

To answer their question, their planner showed them what their income would look like if they invested in low risk or risk-less bonds to guarantee their retirement.   That way they wouldn’t have to worry about a market crash.  To compare, they also looked at a highly rated Fixed Index Annuity (“FIA”) which would guarantee their income like the bonds, but also give them a high probability their income would increase in the future.

To round it out, their planner also included one of the most popular types of dividend paying securities.

See the table below to see how well bonds and dividends worked.

Even though some of the bonds or dividend payers could have worked, there were three big problems.

First, if they hoped to increase their income, they would have to buy mostly shorter term or higher risk bonds and then hope interest rates were higher when the bonds matured and it was time to reinvest. In the low growth economic environment we are likely to continue to be stuck in for years or decades, it didn’t seem likely that bond opportunities would be much better 3, 5 or even 10 years from now.

Corporate, High Yield, and even Municipal Bonds are less risky than stocks, but they aren’t risk free like US Treasuries.  Some analysts have predicted that nearly 50% of municipalities may face impairment in the next recession, perhaps even bankruptcy.  Corporate bonds and High Yield are also subject to market cycles.  So, they had to focus on US Treasuries, which brought them to their 3rd problem.

Using risk free bonds for retirement income took up the vast majority of their investment portfolio.  There was little money left for unexpected or discretionary expenses in the future, and none left to leave a legacy their two boys.

Mortgage Backed Securities couldn’t protect their principal, even though the income was good.

But the Fixed Index Annuity had none of those problems.  The FIA;

  • Paid out enough income to guarantee their retirement using less than 1/3 of the investment required by risk free bonds.
  • Gave them a strong likelihood of increasing income.
  • Allowed them to leave their majority of their portfolio invested for the future, providing plenty of room for unexpected expenses and fun while providing a significant legacy for their boys.
  • Protected their principal.
  • Reduced the dollars they would have to take out of their IRA investments for Required Minimum Distributions, further padding the inheritance for their children.

Do you see why a Fixed Index Annuity fit this couple’s needs better than bonds or dividend securities? 


If you’d like to see how bonds, dividend payers and fixed annuities stack up for you CLICK HERE.

Questions? Use the contact button or the form at the top right.


Comparison Table

Target Annual Income $17,500   Portfolio $ $1,200,000   * bold = principal guaranteed        
Instrument Interest Rate Inflation + ? Principal Guaranteed? Risk of Principal Loss Income per $100k Higher Income Possible? Required Investment for Target Income Time to Maturity % of Portfolio Notes
* 10 Year US Treasury 1.64% No. Yes. No. $1,640 Not until maturity / buy new issue $1,067,070 10 years 68.80% May get higher or lower rates in future.
*10 Year German Bond 0.24% No. No. Very unlikely. $240 Not until maturity / buy new issue $7,291,667 10 years 540% May get higher or lower rates in future.
* 10 Year Japanese Bond -0.009 No. Yes. Negligible. ($90) Not until maturity / buy new issue N/A 10 years N/A May get higher or lower rates in future.
* Certificate of Deposit 1% No. Yes. No. $1,000 Not until maturity / buy new issue $1,750,000 2 years 125% May get higher or lower rates in future.
* Selected Fixed Index Annuity 5%+ Yes. Yes. No, unless pulled early. $6,000 Yes, if markets have positive years. $291,670 10 years. 21.50% Highly probable income will increase almost every year.
Investment Grade Corporate Bonds 4% Yes. No. Yes. $4,000 Not until maturity / buy new issue $437,500 rolling. 32.30% May get higher or lower rates in future. Default risk rises in recession.
High Yield Corporate Bonds 6.25% Yes. No. Yes. $6,250 Not until maturity / buy new issue $280,000 rolling. 20.70% May get higher or lower rates in future. Default risk rises significantly in recession.
Mortgage Backed Securities 2.30% Maybe. No. Yes. $2,300 Not until maturity / buy new issue $673,910 rolling. 56.20% May get higher or lower rates in future. Default risk rises aggressively in recession.
Emerging Market Bonds 4.82% Yes. No. Yes. $4,820 Not until maturity / buy new issue $321,580 rolling. 26.80% May get higher or lower rates in future. Default risk rises aggressively in recession.
Municipal Bonds – A Rated 2.20% Maybe. No. Minimal. $2,200 Not until maturity / buy new issue $795,455 10 years. 58.70% May get higher or lower rates in future. Default risk rises in recession.

Rates current as of June 2016

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For ACI, investment management begins with understanding and actively managing risk for our clients and partners.  We do this through smarter investments built on low cost, highly liquid and diversified investments rather than expensive financial products.


Understanding the needs of investors seeking stable results for portfolios greater than $500,000 is a core strength of ACI.  One of the most important things we do is help your investments to create stable income while generating sufficient growth to meet your future demands and the needs of those you care for. 

ACI uses customized planning and software to create retirement income plans to meet the specific needs of each of clients while providing confidence, flexibility, and cost efficiency.


Success in any endeavor comes from hard work, vision, and planning. We can help you create a more confident future by working with you, your CPA, your tax and estate counsel to make sure that when the tomorrow becomes today, you are where you want to be.

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Market Income

This portfolio invests in a basket of highly liquid Index or Sector securities and sells off atypical returns in exchange for a premium on a rolling basis. That’s a fancy way of saying we take the bird in hand and let someone else have the two in the bush.  We buy sectors that are undervalued relative to the rest of the market or vs. their historical value ranges which reduces downside risk vs. the broad market.  Typically out-performs in bear markets, neutral markets and mild bull markets, and under-performs strong bull markets.

Core Equity

Invests in diversified components of the financial markets and broad economy by targeting sectors which demonstrate the greatest potential for a consistent range of multi-year returns, while offering a risk adjusted investment profile equal to or lower than the broad markets.  Our research tells us which sectors demonstrate the greatest potential for consistent multi-year returns while offering greater risk efficiency than the broad markets.  We invest on an “Outcome Oriented” basis – meaning we have a good idea what the returns over time will be at a given purchase price.

Durable Opportunities

This portfolio invests in companies possessing a Durable Competitive Advantage.  Such companies are likely to be around for decades, easing the concern of principal return.  DCA companies often suffer less in bear markets and usually lead recoveries.  These companies allow ACI to build portfolios with minimum expected returns that can be in the mid-single digit range over any 3-5 year period which can provide long term stability partnered with long term growth in equity.

Full Cycle

This portfolio is derived from the ground breaking work in ‘risk parity’ by Ray Dalio, arguably one of the top 10 money managers in history and founder of Bridgewater Associates.  The Full Cycle portfolio is built on the allocation models Ray designed to provide the highest potential risk adjusted returns possible through all phases of the economic cycle.  Bridgewater’s “All Weather” fund was designed for pension funds and other large institutional investors that needed to earn stable returns with stable risk, and has been closed to new investors for years.  At the time the fund closed, the All Weather Portfolio had a minimum required investment of $100 million.

Equity Builder

This is a risk management overlay which helps build and protect accounts by collecting small premiums against held positions on an opportunistic basis during correcting markets through synthetic “short” positions.  EQB seeks to collect an extra 2% – 5% per year against the cost of underlying investments.  While primarily targeted at increasing account equity, EQB gives an extra layer of protection to capital during periods of higher volatility.

Fixed Income

Diversified, broad exposure to fixed income ETFs and best of breed no load funds including core fixed income components such as Government, Corporate or MBS, municipals, and unconstrained “Go Anywhere” funds.

Investment Team


Dak Hartsock; Investment manager with over 15 years of experience with securities & securities options. Dak has worked full time in the financial markets since 2007. He has more than a decade of operating experience as a business owner & developer. He is a graduate of the University of Virginia.

Robert Hartsock; MBA. Bob has over 30 years of senior management experience in diverse markets, products and businesses. He brings an exceptional record that includes management roles in two Fortune 500 companies and leadership of 7,500+ employees. Bob’s career features a specialization in identifying and fixing management and operational problems for multiple companies including leading over a dozen acquisitions, private placements and a public offering. He is uniquely positioned to provide ACI with highly relevant C-Level management perspective. Bob provides operational & macro perspective on investments ACI undertakes for client portfolios. Bob holds degrees from University of Illinois and University of Washington.

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