Higher Interest Rates?

One of the biggest mistakes people make in financial planning is assuming insurance is always good simply because it offers protection. The reality is, being under-insured can financially devastate a family, while being over-insured can quietly drain wealth for decades through unnecessary premiums and poorly structured policies. The key is balance.

Insurance is meant to transfer risk — not become an investment strategy for every part of your life.

Under-insuring yourself is the more obvious danger. If you do not have enough life insurance, disability insurance, umbrella liability coverage, or proper health coverage, one unexpected event can destroy years of financial progress. A young family with a mortgage, children, and a single income source is highly exposed if the breadwinner dies or becomes disabled. Many people assume their employer coverage is enough, only to realize later that a basic one or two times salary death benefit barely scratches the surface of what their family would actually need.

Disability insurance is another major blind spot. Your ability to earn an income is often your greatest asset, especially during your working years. Yet people spend more time insuring their phone than protecting their paycheck. A six-figure earner who loses the ability to work for even a few years can suffer far more financial damage than most market downturns could ever cause.

Liability coverage is also commonly overlooked. As wealth grows, exposure grows with it. A successful business owner, physician, or retiree with substantial assets should strongly consider umbrella insurance. In today’s litigious environment, lawsuits can threaten decades of savings and investments if coverage is inadequate.

But over-insuring yourself creates a different problem — inefficiency.

Many people accumulate insurance policies they no longer need because they were sold products rather than given financial advice. By the time someone reaches retirement with substantial assets, the need for large life insurance policies may diminish dramatically. If your investments, retirement accounts, and real estate already provide financial security for your spouse and heirs, continuing to pay massive premiums may no longer make sense.

This is especially true when insurance products are pitched as “investments” without fully explaining the costs, surrender charges, or long-term return limitations. Some permanent life insurance policies can play an important role in estate planning or tax strategy, but not every person needs an expensive policy simply because it sounds sophisticated.

The same applies to extended warranties, excessive deductibles, duplicate health policies, or insuring low-risk events. Some people become so focused on avoiding every possible loss that they end up sacrificing long-term wealth accumulation. Insurance should protect against catastrophic financial risks — not every inconvenience in life.

Financial planning is ultimately about understanding probability, risk tolerance, cash flow, and goals. A 30-year-old with young children has very different insurance needs than a 70-year-old retiree with a paid-off home and a large investment portfolio. Your coverage should evolve as your life evolves.

A good financial plan periodically asks important questions:

• What financial risks would truly hurt my family?

• Which risks can I comfortably self-insure?

• Has my net worth reduced my need for certain policies?

• Am I paying for coverage I no longer need?

• Are there gaps in protection that could create catastrophic consequences?

The goal is not to buy the most insurance possible. The goal is to create enough protection so that one bad event does not permanently derail your financial future — while still allowing your money to grow efficiently over time.

Too little insurance creates vulnerability. Too much insurance creates drag. Smart financial planning lives somewhere in the middle.

Click here to schedule a meeting — I’m here to help you take the next step toward financial freedom.

Colin Symons, CIO Lloyd Financial Group

I believe it’s fair to say the primary issue for the stock market is elevated rates. There are two basic problems with high rates. First, it raises the cost of capital, making it harder for companies to transact and crimping their profits. Second, it hurts valuation math, making out-year earnings worth less. Last, at some point those higher yields become competition for investment dollars.

Stock bulls should generally want lower rates, and thus always want to be bond bulls to some extent, as it’s an easier environment for them. It’s a relatively acute problem now, though, as shorter-term rates are starting to not only make rate cuts disappear but ponder rate hikes.

While the stock market seems to have handled rate cuts disappearing OK, rate hikes are likely another matter. As I mentioned before, one aid to make this recent period easier for stocks is that real rates have been trending down, which basically is an indication of the cost of money getting functionally cheaper.

Higher rates from here would be problematic, as on the shorter end of the curve, you’d be implying rate hikes. Realistically, that seems unlikely, as what are the odds a new Trump-era Fed Chairman is going to come in and immediately hike rates? More likely, 2Y yields and shorter have likely peaked.

The longer end is harder to call. To what extent is inflation sticky? Can AI cause a productivity boom and raise economic growth? Both or either of those can raise nominal GDP, and those expectations roughly correlate with something like 10Y and 30Y yields. It would be nice to see longer-term rates drop, but it’s less obvious.

That said, I do think you can make a reasonable case that longer rates have already priced in a fair amount. Inflation expectations have already been going up quite a bit, particularly this year. 10-year real interest rates have also been on the rise since the covid era, getting near 20-year highs before starting to come down a little over the last eighteen months. Wrap it all together and it’s reasonable to think longer-term rates may be done with big upward moves, at least.

Ultimately, I think we can believe that if nothing too bad happens, shorter-term rates are unlikely to go much higher. That doesn’t mean stocks have to go higher, but one of the big binders on upside looks like it may have peaked. It would be nice to say the longer part of the yield curve is also headed lower, but that’s harder to say. You can, at least, say a fair amount has already been priced in.

If stock investors want to see gains, they really want to be bond bulls, as rate stress has caused trouble. That doesn’t mean buy bonds, as stocks still seem like an easier purchase here. We just don’t want to see bonds continue to get beaten-up, here. Rates may not move in a straight line, but a trend of lower or steady rates would be awfully helpful for stock bulls.

Iran responded to the US and said their latest proposal not to build nuclear weapons but no promise on enrichment or the Strait of Hormuz. In turn, the US proposed a temporary waiver on Iran oil sanctions.

After talking to Middle East leaders, Trump called off military strikes for a time, leading to a relief rally last afternoon. Appetite for war seems low.

Korea’s KOSPI index continues the rollercoaster, with the index -5% on semiconductor and memory weakness.

Seagate (STX) was -7% after management comments they may not be able to keep up with memory demand.

NVDA earnings tomorrow may be creating some additional hedging demand, along with today’s VIXpiration.

Pending Home Sales and ADP Weekly jobs today.

Bottom line: Downside protection is getting rolled into the next month.

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