Why do you have to lose? You don’t!
Do you ever wish you could only reap when the market makes money, without having to participate in down risk?
Index Annuities allow you to achieve such strategy!
First and Foremost, Equity-Indexed Annuities are not to compete with market returns. Over the long-haul, they never will.
However, these vehicles can prove as an excellent safety- net against the downturns in the market.
Equity-Indexed Annuities have several benefits:
- Principal protection, helping to achieve long term stability-
- Fixed Index Annuity (going forward abbreviated “FIA”) is an insurance product designed to ensure retirement income. Funds contributed to a fixed index annuity can never lost due to market volatility.
- Because a FIA offers the opportunity to earn interest on principal, and interest earned is tax deferred. Jump start your retirement assets with tax benefits not offered by non-tax deferred accounts
- Growth opportunity for those looking for preservation of capital and asset accumulation. Reap the market’s good times without the downside risk
- Guaranteed Income – Get guaranteed income that will not go down regardless of how the market performs
- Take care of your loved ones with a Death Benefit that won’t get tied up in probate. Annuities have a death benefit that passes directly to your heirs
- Always reliable- FIAs aim to protect and help grow money over time and provide a guaranteed income stream
The Meat and Potatoes
Total disclaimer and transparency: FIA can be complicated and seemingly “too good to be true”- Especially if you are sitting in a lunch seminar with a local Joe Blow insurance agent claiming THIS product is for you! Just as some investments are not for everyone, the same holds true with FIAs. Some Annuities are total crap. Some Investments are complete garbage- JUST look at over-the-counter stocks (OTC aka Pink-Sheets). There is no one size fits all and if anyone tries to talk you into to putting all your investments in a FIA, punch and run!
Here’s how it works:
The genie in the bottle with FIAs: Index Options
What is an Index and what the heck is an Option”
Picture a scale and this scale reflects the average price of a particular group of stocks or bonds- (S&P 500, Dow, NASDAQ, etc). This is an INDEX
Now, options are a little more nuanced .
Options are the right (but not the obligation) to buy or sell a stock. Originally they were a kind of insurance. Think of it this way: the cost of a stamp today is $.55… we all know they will go up, because that is what inflation and especially the government does. Lets say you could by an option to purchase next year at $.55. When stamps skyrocket to a whomping $.65. If you would have purchased an option to buy those stamps at the $.55 price at a future date, and exercise that option when the stamps hit $.65 the following year, you in essence made 18.18% on your money!
This is what FIA carriers are doing. Betting on the market. Often through a method called Straddle. A straddle is an option involving the purchase of both a PUT and a CALL option. Puts- Betting the stock price will rise. Call- Betting the stock will fall. They are paying premiums for these options (just like the premiums you pay for life insurance. You know you will die, but when???? so you pay premiums just in case you bite the dust, your beneficiaries get the reward… Kind of morbid if you think about it like that.. but it’s the truth)….
Have you ever seen the Big Short? Perhaps my favorite movie of all time!
It is about the market crash in 2008. A few saw it coming and profited from the loses…. and the rest? They were in denial
Ryan Gosling’s character- Jared Vennet (featured below) was basically an insurance salesman. He knew what was about to happen with the Real Estate bubble and was selling credit default swamps (a fancy name for insurance) for a premium so when the market crashed and call could be executed at “today’s” price. Everyone in the investment industry thought he was nuts (after all, Real Estate doesn’t crash)… In comes Christian Bale- Michael Burry a real-life hedge fund manager. (continued below)
Michael Burry saw right through this real estate securities…well, I say “right through” but honestly, he dug through every underlying sub-prime loan that was packaged in these securities. He purchased the credit default swamps(CDS), and kept purchasing the CDSs, and then some. Essentially these were call options. He was betting on the fact that he knew the security would fall due to the crap subprime loans that were in there. For simplicity sake, he purchased a CDS with a premium of say $5 with a value of $100. So when the stock fell to, for example, $.10, he exercised his option and cash out for $100 for each share he owned.
Man, I wish I could be a Michael Burry or Jordan Venne Vennet!
Side Note: I heard Michael Burry at a Financial Service Professionals meeting in Atlanta in 2009… very interesting character to say the least! But I digress…
This is what FIA are essentially doing. However, not to this degree of “certainty”
They are straddling the market by purchasing both Puts and Calls, hedging their bets while focusing on cash accumulation.
Now, as I said: Indexing Strategies are nuanced… and I won’t got into everyone here. Should you want to learn more, please feel free to call our office Toll Free at (85) 664-5660 to learn more… Ask for Beau or option 1!
Regards,
Beau Singletary
Office: (828) 513-5045
Fax: (828) 412-0198
1854 Hendersonville Road, Suite A, #18
Asheville, NC 28803
www.laurelinsurancepartners.com
Protecting Assets and Planning your future since 2003