What Goes Up Doesn’t Have to Come Down
Did you hear the news about yesterday’s Dow Jones Index losing 900 points in a 20-minute period? It even has the SEC regulatory authorities looking into it. There is speculation that a trader may have mistakenly made an error in typing in the wrong numbers. Instead of million, a trader may have accidentally entered a billion shares to sell.
I sure hope that the current success of the Dow Jones Index, S&P 500 Index and other stock market indicators do not fool anybody in thinking that we are out of the woods, yet. It caused some stocks to go from $40/share to pennies, then come back up again. How stressful is that? I mean, if you are a nurse, firefighter or entrepreneur, do you really have time to babysit the stock market?
I am looking forward to us all getting back on the good foot, but let us not forget what we have all learned from hindsight. Here is a great guest post from Yolander Prinzel while she uses one of our YouTube videos to help illustrate.
Understanding the Value of Fixed Index Annuities
- How much can you put aside in order to avoid outliving your retirement savings?
- How risky a portfolio can you handle in order to maximize your growth potential?
- How much are you willing to lose to chase after those high returns?
For many professionals and pre-retirees, these questions and the conflicting answers they elicit do nothing more than to either compel them to make a rash decision and throw their money into a risky stock portfolio or keep their money like their cards-close to the vest with a taxable, low-interest CD.
One Possible Solution
Whether you are a money-thrower or a careful card player, there is one way to enjoy the best of both worlds and get some of the upside potential a portfolio of stocks brings, the security of a fixed CD along with its guaranteed growth, tax-deferred gains, guaranteed payments as long as you live and the ability to access some of your money without penalty*. This may sound like a magical bean we’re extolling the virtue of, but it’s not. It is simply a fixed index annuity.
You may have heard fixed index annuities referred to as equity indexed annuities-but the word “equity” is a real misnomer. Why? Because when you invest in equities (stocks) there are no guarantees. With a fixed index annuity, there is. While your principal is set up to grow following the performance of one of the major indices, there is a floor or minimum guaranteed return on your principal, much like a CD offers. Of course, unlike a CD a fixed index annuity gives investors more upside potential than just the minimum guarantee. That means that you are not locked in to a low rate CD for a fixed period while interest rates in new CDs are going up. Instead, you are able to enjoy both upside potential and downside risk.
*Only a portion of your annuity will be available without triggering CDSC (or “surrender”) charges.
The Fine Print
Fixed index annuities have a ceiling or cap placed on their earnings-but unlike a CD that cap gives an investor the opportunity to earn a generous double-digit return. In addition, you have a choice of payment option once the annuity annuitizes. You can choose period certain or life payments so that you get a guaranteed payment for a set period of time or you get payments for life, which are payments you can’t outlive. It’s almost like creating your own pension plan-and in a working world where pensions, 401k matches and profit sharing plans are drying up, that is a major benefit.
Of course, there is one thing a CD has that a fixed index annuity does not-FDIC insurance. But while an annuity isn’t FDIC insured against insurer insolvency, most are protected anywhere from $100,000-$500,000 by your state’s State Guaranty association. To find out your states specific protection, visit The National Organization of Life and Health Insurance Guaranty Associations and choose your state in the drop down menu.
About Yolander Prinzel
Yolander Prinzel (www.YolanderPrinzel.com) is a financial writer as well as a series 7, 66 and 2-15 licensed representative. During her decade of financial industry experience she has been an insurance agency director of marketing and director of operations, a life insurance underwriter, and a trading service specialist for Raymond James Financial Services. She was a featured speaker at the 2006 Hartford National Sales Conference and the 2006 Brookstreet Securities Annual Conference.
Great guest post here Yolander! Team work makes the dream work!
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Great guest post here Yolander! Team work makes the dream work!