by: Cory Carlton - CEO & Coo-Founder of Both Hands FG
Many people were lulled into a level of comfort that the market was just going to continue to be strong. For the last decade, everyone’s money has grown. With the exception of this last year.
We’ve been reminded, painfully, that the market goes up and down.
Many “traditional” advisors give the advice to just wait it out and that the market will rebound. Wait and do nothing is their advice.
They are correct. The market will rebound. It always does. But how long will it take you to get back to even?
For many Americans, it took five to ten years to recover from the 2008/2009 recession. Do you have enough time to get back to where you were before this year?
You can wait this out. The market will recover, and you will get your money back, eventually.
But it will happen again. And where will you be at that point? Losing 20% or more at that time could sting a lot more then.
Is doing the same thing you’ve been doing, which is accepting that it’s okay to lose a bunch of your money, the right way to move forward and recover?
What’s the other option? I’m so glad you asked.
Traditional investing means that if the market returns 15% then you should be able to expect that your money would grow by approximately the same amount. That’s logical and makes sense.
Same thing when it goes down.
Remember, if you take a 15% loss you will need more than that to get even. That means it’s harder to get your money back once you’ve lost it.
So that means you need to make sure you don’t lose your money in the first place.
But what if there were a way that when the market goes down you don’t lose a penny? Then at the same time when the market grows by 15%, your account gets credited with 45%. Would that be of interest to you?
At this point you’re thinking, “this sounds too good to be true” or “If this is so good why have I not heard about it?”
There are a few reasons but that is an entirely different article I will get into another time.
The product that does this is a fixed indexed annuity. If you consider yourself an open-minded person, then keep reading. If seeing this article is talking about the value of annuities frustrates you then read no further.
These products are more straightforward than most people realize.
You put a portion of your savings into one of these annuities and that amount is protected. You won’t ever have less than that even if there is never any growth.
The performance of the annuity is tied to an index and either once a year, or once every two years, interest is credited to your account.
If the index is up from the last contract anniversary, then there will be interest credited to the account.
Meaning if the index is up 15% your account could be credited up to 45%.
If you have $100,000 in your annuity, then at the next crediting period your account would now be worth $145,000 and that amount gets locked in and your account won’t ever be less than that.
Of, if you keep doing what you have been that same amount of money would only be worth $115,000.
These annuities have enhanced participation rates and that’s how they can grow effectively and help people recover what has been lost during 2022.
The participation rate means that whatever the index grows by the annuity carrier multiplies it by the participation rate. Depending on the carrier those participation rates can range from 250% to more than 300%.
This is all without risk.
The flip side of this is that you will never lose a penny. You get the upside potential with no risk. If the market, or index, has a bad year like 2022, that just means your account does not grow. It also does not go down either.
There are still fees that would come out just like any other financial product and those fees range from 0.9% to 1.75% depending on the annuity.
So, let’s think this through as to why you may want to consider this…
- Keeping your money where it is exposed to further risk.
- Keeping your money where it means it only grows by whatever the returns are.
- The money you’ve lost this year could be recouped faster in an annuity due to the enhanced participation rates.
- You won’t be risking your money with an annuity.
- Your money will be able to grow in the future and you won’t have to worry about losing value.
Obviously, we are pro-annuity. We’re also pro-investments. We do both insurance and investments because they work hand in hand. Hence one of the reasons for the name of our company.
We base our recommendations on what is right for each of our clients, and we believe annuities can play a role in a retirement savings strategy for a portion of peoples’ assets.
There are good annuities and there are bad annuities. You want to avoid the annuities that have high fees and poor performance [like variable annuities of late] and avoid the annuities that cap your growth potential. Those are often sold at banks.
If you’re tired of compromising your retirement and want to grow your money without risking it, an annuity may be a good option for you. Also, you can even give yourself a guaranteed income that you and your spouse can never outlive, no matter what. And any unused funds go to your beneficiary of choice.
Annuities have their place. Reach out if to learn more to see how they may work for you.