"The good news is that you can't lose."
Whether you are in retirement or near retirement or just incredibly risk adverse the Fixed Indexed Annuity is a fantastic option for you to preserve your capital. Why is that? Because there are so many uncertainties in the stock market, monetary and fiscal policy and the overall World Economy. A Fixed Indexed Annuity will protect your money from all the bad years, giving you an investment floor at 0%. But like anything in life that means that you will have a ceiling - being capped at a percentage that is typically around 6-7-8-9% depending on the company and product that you choose. However, if you allocate some money into the fixed investment option for a portion of your portfolio then even when the index provides a return of 0%, your fixed portion will make sure that your overall portfolio will always be gaining money!
"Peace of Mind" Investing
Now, we aren't going to tell you that it is "free money" but if choose a product with no fees then it may not cost you much at all. However, as we always say at E. H. Howard - "You can't put a price on peace of mind." The Fixed Indexed Annuity exemplifies the idea of "peace of mind" when it comes to investing.
Limitations of the Annuity
Even though you may fall in love with the idea of your ENTIRE portfolio never losing any money and that may still be possible, but the annuity is made to only be a PART of your portfolio. Because the average annuity has a surrender period, and fees that are implemented if you withdraw over the allowed amount this makes annuities to be rather illiquid. Think of a Fixed Indexed Annuity to be more of an investment alternative for bonds, this will provide more of a correlated asset with your stock market but also you gain the stability from the fixed portion.
Bond Alternative
Many times, you hear people in finance saying that you want totally uncorrelated assets in your portfolio, which may make sense in the bad years investing years to mitigate your losses. However, if you have completely inverse correlated assets, you greatly hurt your potential for gains. Why do you always want your portfolio working against itself? Instead of bonds, you would be wise to consider a Fixed Indexed Annuity instead of bonds. This way you ride the gains of a bull market (although capped) and floored at 0% in a bear market while gaining a conservative percentage in the fixed portion of your portfolio. Thus, achieving the stability of the idea of bonds while not killing your potential of gains when the market performs well in a bull market.
Is this for you?
Whether you think that a Fixed Indexed annuity is for you, or you currently have one and just want to learn more about it then please feel free to reach out to us, at E. H. Howard Wealth Management. Our team is dedicated to providing you with ethical, and competent advice regarding your entire financial plan. We'll be happy to accommodate your needs and help you determine if a Fixed Indexed Annuity fits in to your comprehensive financial plan.
Written by: Eli Howard