Monday, March 22, 2004
Recent Client Question? www.legacyannuities.com
Benefits of an Index annuity?
Protect Your Assets from a Falling Stock Market
Most investors seem to want the same things--a high return and no risk of loss. While this combination is hard to come by, in this article, I'll tell you about an investment that comes as close as possible.
The investment works as follows:
1. You deposit a sum of money into an annuity.
2. Your return is based on the average of the increase in the S&P 500 index for the year. For example, if the S&P 500 index is 1000 at the beginning of the year, and the closing S&P at the end of each month averages 1100, your return is 10%.
3. If the market goes down, your account does not fall, you simply earn $0 and preserve your account value.
4. At the end of the fixed period, you are guaranteed a certain sum back that is larger than your initial deposit, even if the stock market has declined every year. Thus, we have an investment that goes up with the stock market yet does not go down when the market does.
The investment is called an Aindex annuity@ and many insurance companies are offering some version of this fixed annuity.
Here is how I see it:
Your stocks have grown nicely over the past few years. In fact, from a low of 1751 after the 1987 crash, the Dow Jones Average has soared to over 11,000. You may feel it's time to protect some of your profits.
For some investors it may be wise to take cash out of the stock market and park it in the index annuity. If the market continues up, you participate in the climb (although your gain will most likely not be as great as investing directly in an S&P 500 index fund). However, if the market turns around and heads down, you have protected your original principal. And by the way, because it=s an annuity, your growth is all tax deferred and the original principal is guaranteed by the issuing insurance company
Benefits of an Index annuity?
Protect Your Assets from a Falling Stock Market
Most investors seem to want the same things--a high return and no risk of loss. While this combination is hard to come by, in this article, I'll tell you about an investment that comes as close as possible.
The investment works as follows:
1. You deposit a sum of money into an annuity.
2. Your return is based on the average of the increase in the S&P 500 index for the year. For example, if the S&P 500 index is 1000 at the beginning of the year, and the closing S&P at the end of each month averages 1100, your return is 10%.
3. If the market goes down, your account does not fall, you simply earn $0 and preserve your account value.
4. At the end of the fixed period, you are guaranteed a certain sum back that is larger than your initial deposit, even if the stock market has declined every year. Thus, we have an investment that goes up with the stock market yet does not go down when the market does.
The investment is called an Aindex annuity@ and many insurance companies are offering some version of this fixed annuity.
Here is how I see it:
Your stocks have grown nicely over the past few years. In fact, from a low of 1751 after the 1987 crash, the Dow Jones Average has soared to over 11,000. You may feel it's time to protect some of your profits.
For some investors it may be wise to take cash out of the stock market and park it in the index annuity. If the market continues up, you participate in the climb (although your gain will most likely not be as great as investing directly in an S&P 500 index fund). However, if the market turns around and heads down, you have protected your original principal. And by the way, because it=s an annuity, your growth is all tax deferred and the original principal is guaranteed by the issuing insurance company
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