Investment Idea – Safety and Dividends with Insurance IAK

How is your portfolio lately?  Not so rosy?  Too much risk?  Is the stock market continues to turning your stomach?  How about taking a look at a much lower risk investment idea that will provide steady growth with dividends instead.  I’m talking about investing with insurance.  There’s an ETF made up of several insurance companies, which spreads out the risk even more, that is that opportunity called IAK.

insurance-companies

The most interesting part of this idea…We typically don’t look at insurance this way.  It’s just a monthly payment we pay to someone just in case something happens.  Every time we think about submitting a claim, it’s the pro’s and con’s about insurance rates going up or pay out of pocket.  We don’t look at the other side of the coin saying, “Wow, they must be sitting on top of a lot of money.”  Insurance regulations stipulate that insurance must keep a high percentage of cash on their books at all time.  They can pay out dividends and usually do just that.  Since they must sit on a large amount of cash at all times, it makes their business models very sound.  Very sound, very safe.

The hardest part of this equation is that safety and risk.  Especially since the AIG crisis in 2008 where they were bailed out by the Federal Government for terrible management decisions.  Times are different now.  Companies have more strict guidelines in place to prevent that type of situation from happening again.  This leads me to the investment idea, IAK.

IAK is an investment ETF under iShares composed of major US-based insurance companies, most of which you should know.  See a few of the companies below the major composition of the portfolio, which represents over 60% of the portfolio:

  • AIG
  • Metlife
  • Prudential
  • Traveler’s Companies

The fund has returned over 15% in the previous 12 months with consistent growth, while paying a 1.42% annual dividend to shareholders.  The risk level correlates to the stability with a beta of .94 (anything under 1.0 is a low indicator of risk).

Let’s go back to the original question?  Why should this interest you?  Investments like this provide low risk, steady returns, and will continue to grow in your portfolio.  As the fed looks to raise interest rates over the next 1-5 years to stabilize inflation, insurance companies will be yet another benefactor of higher rates since they are required to have a majority of their portfolio in fixed income.  Again, as interest rates rise, you should look to see what investments will profit.  Insurance is one.  Financials is another sector to look at as I wrote about it a few weeks back here with FNCL.  If you want to see the complete snapshot of the fund, take a look here on Fidelity.com.

Stable growth and very low risk.  That’s what you are looking for. Here’s where it is.

Chart

Alex Richwagen is an investment research analyst.  Any of his recommendations are that of Mr. Richwagen, the information presented by him is the opinion of his research.  All investment decisions are your choice and should be based on your own analysis.

Alex Richwagen
Alex Richwagen

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