Episode 89 of the LIFE Pod is up. Carlo Viqueira and I spent it on uncorrelated assets: why you want something in your portfolio that doesn't move with the stock market, and why we both keep ours in cash value life insurance.
Carlo started with 2008. He lived through it, and the dot-com bubble before it, and the lost decade that followed. When every asset class is dropping at once, the people who come out ahead are the ones with capital they can still reach. Lines of credit dry up in a crash. So the buyers of foreclosed houses and cheap stocks after the crash were people sitting on cash or on cash value, because that money was still there. Carlo bought property in 2011 and calls it one of the best investments he's made. A lot of the finance creators you watch on YouTube got their start the same way.
Crashes tend to arrive when excitement is highest. People pile in, they're overextended, they're using leverage. That's happening right now, and some would say we're in a bubble. At the peak of a bubble everybody's buying and everybody's borrowed to do it, and when it turns, the people who get hit hardest are the ones with nothing that sits outside the market.
So why do the insurance companies hold up? I asked Carlo about 2022, when stocks and bonds fell together. Whole life is the asset we both treat as a bond alternative, and that year it did the job the actual bonds didn't. The reason is how carriers own bonds. They buy 10-, 20-, and 30-year bonds and hold them to maturity. They built the product around the rate they bought at, so they never have to sell. A bond fund is different. If new bonds pay a higher rate than the ones the fund already owns, the old ones are worth less, and anybody who needs to unload them takes a discount. That's the loss you saw in bond ETFs in 2022. The carrier never had to take it. And when rates rise, new premium goes out and buys the higher-yield bonds, which is why some dividend rates have started moving up.
The same general fund is why an IUL is uncorrelated on the way down. The market drops 30% and you don't lose money. The carrier's general fund is holding steady, the options budget stays about the same, and the annual reset puts you in position to bounce back the following year. You can still borrow against the cash value in the meantime. Carlo's point is that an IUL is uncorrelated with the downside but can be correlated with the upside: a correction year might be a zero year, or the low guaranteed credit, and the year after a big correction can be a big year.
Variable universal life is the one we'd leave out of this conversation. If you're using the variable side, you're in the market. Some newer variable products offer indexed options, and Carlo's read is that you're still exposed at some point. Mine is that timing is the problem. It's really hard to time the market, so when the black swan lands you're most likely still in the variable accounts and never got the chance to move into the indexed side.
We're not anti-market. Carlo owns ETFs and individual stocks, and I have money in the market too. The point is that a diversified portfolio has something in it that doesn't follow the market, and we'd rather that something be cash value than cash in a checking account or even treasury bonds. Gold and crypto get pitched as the uncorrelated piece, and the last decade hasn't backed that up. Bonds fell in 2022 and made a lot of advisors rethink how disconnected bonds really are. Gold, silver, and crypto have all moved hard this year. Safe places have been hard to find.
Next week's episode is the lifetime line of credit and how you build one.
Dividends aren't guaranteed, and nothing here is advice on your own portfolio. I'm a licensed insurance broker, not a CPA, an attorney, or a registered advisor.