Equity Indexed Annuities
How did they Perform in
the Worst Bear Market Since the Depression?
Index annuities performed
competitively in spite of enduring the worst bear market
since the Depression. There were fourteen carriers
available five
years ago
offering index annuities that today have completed their
index period or posted five years of interest crediting.
Ten of these provided Jack Marion, President of Advantage
Group, a watch dog of financial products, with copies of
2003 documentation, for those who had purchased index
annuities as close to 30 September 1998 as possible. He
compared the total return of these annuities with various
other vehicles for the same period. Below is the results.
Although some annuities had higher total returns than
others did, let’s focus on the success of the index
annuity concept and not individual results. The bottom
line is index annuities went through their baptism
by fire during this period and all performed as
they were designed to do. The annual reset (lock in last
year gains) did exactly what they were suppose to do –
participate in the index advances in 1998 and 1999,
protect the interest
credited
during the
index declines in 2001 and 2002. And then reset at the
indices’ lower levels to take advantage of the index
climb in 2003. The average total returns were 35.67%.
It is interesting to note that
all of the index annuities
posted higher returns than
index funds for the same period and two of the index
products bested returns of the nation’s largest bond
fund. The average index annuity total return at 33.7% was
considerably higher than the average stock mutual fund or
variable annuity equity sub-account returns. Which is
probably not surprising when the swings of the stock
market are considered, but the average index annuity
return was better than typical bond vehicles during a
reportedly strong bond market, and was also almost 50%
higher than the return of the average certificate of
deposit.
Eliminating losses
produces the same benefits
as reinvested dividends or better. Don’t be fooled by
rates of return with other investment vehicles. This
return bar shows the average gain
ABOVE principle
that was invested!
Indexed annuities are not “in” the stock market but are
“linked” to indices such as the S&P500, DJIA, NASDAQ and
many others depending on the company. This is a sure way
for someone to not worry about their money while markets
swing, up or down. With these annuities
you cannot
loose your principle
it is guaranteed to earn nearly 3% while still
participating in the upside of the market. Some companies
even offer up to 36% of the markets upside!
Don’t worry about
liquidity. In most cases you can remove 10% annually,
take loans, and if in a nursing home your money is
surrender charge free to you. There is not enough space
to review all the details here, but speak with an advisor
like myself who can provide more than one option when it
comes to preserving your hard earned money. The first
index annuity was purchased almost nine years ago. During
their brief existence the stock market has produced years
of irrational returns and historical losses, not a gentle
environment for a nine-year-old. In spite of this, index
annuities are building a tangible record of performance
and protection. Although the future path of the market
has yet to be walked, index annuities have proven they
offer safety in bad times and extraordinary potential in
good.
Spend some time with a “specialist” who can go over the
many solutions that Equity Index Annuities offer. Call
me, or email me for your free consultation with no
obligation on your part, I promise.
“The Journey
to a friends house is never too long”.
Danish Proverb.
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