After the U.S. Federal Reserve cut interest rates, and China devalued its currency, the markets plunged. You may be wondering if this is the beginning of a bear market. Market moves can be concerning, but no one really knows where they will be heading next.
So, what is the best path forward for your investments? There are a few key things we can do right now, like assessing your risk tolerance, evaluating your timeframe, and looking for investments that take advantage of the market downswing. It can be a good time to buy.
You might notice that a lot of the points above are related to doing nothing. Knee jerk reactions to short-term moves and turning a portfolio upside down is probably not the appropriate course of action.
However, there is a compelling argument for taking advantage of down markets, ie: having a portion of your portfolio in an account that doesn't go down when the market goes down.
Take a look at the first chart below, it shows how a Fixed Index Annuity (FIA), would have performed from 2000 - 2019 without taking any income, if you only participated in the S&P 500 at a 50% participation rate, IE: if the S&P goes up 10% you get 5%, (10%X50%=5%), and if the S&P goes down 10% your money stays level, (-10% = Zero return).
On top of no fees.
Now take a look at the second chart using the 4% rule in retirement for income ie: ($1,000,000 x 4%= $40,000) it shows how a Fixed Index Annuity (FIA), would have performed from 2000 - 2019 if you only participated in the S&P 500 at a 50% participation rate, IE: if the S&P goes up 10% you get 5%, (10%X50%=5%), and if the S&P goes down 10% your money stays level, (-10% = Zero return).
On top of no fees.
This is sometimes called a single-premium annuity. You can purchase an annuity with a lump sum and begin to receive regular payments right away, and guaranteed that specific amount of income for the rest of your life.
To learn more about how annuities can benefit you in your retirement, call Retirement Planning Group LLC today at 520-203-7570 for a FREE consultation.
A fixed annuity is just what it sounds like—it offers a fixed rate of return for a fixed period of time. It pays a steady interest rate of 1-3%, has no fees for the base contract, and the principal grows tax-deferred.
A variable annuity has some annuity benefits and includes an investment feature.Think of it as a box that holds diverse investments (subaccounts), managed by mutualfund managers. Because the funds are exposed to the stock market, they areexposed to higher risk with the potential for higher gains.
It’s kind of a blend between an Immediate annuity (without the Annuitization Portion) and a Variable Annuity and utilizes beneficial elements of each.
An FIA is similar to a variable annuity in that interest gains are linked to the rise in value of a stock market index. However, in an FIA, your money is not actually invested in or exposed to the market. If the specified index gains value, additional interest is added to your money. After those gains are credited (see your annuity contract for crediting timeframes), you do not lose the credited interest when the index loses value.
Cap – (keyword: ceiling) the limit on the amount you can earn over a given time period, typically one year.
Example: At a 10% cap rate, if an index experiences 20% growth, you will be credited 10%.
"*We like the contracts that are uncapped"
Spread – (keyword: margin) a percentage of an index gain that you do not receive.
Example: At a 1% spread, if an index experiences 10% growth, you will be credited 9%.
The higher the spread percentage, the lower the return will be of any interest gains to your principal.
"We like contracts with no spread"
Participation rate – the percentage of the gains you are eligible to receive in a given period of time.
Example: At a 50% participation rate, if an index experiences 20% growth you will get 10%.
"We Prefer contracts with high Participation Rates, 50% or Higher"
Fees- (keyword: Losses) many Variable Annuities have fees ranging from 2-7.5%, while a Fixed Index Annuity typically will have a 1-2% fee.
"We prefer NO FEE Index Annuities"
Which arrangement will work best for you depends on what you want to accomplish with these contracts. This is another place where a specialized retirement income professional can be of great service to you. The goal(s) you have for your money will influence which contract option(s) you may want to choose.
We tend to favor for our clients the contracts and terms that give you the maximum protected growth and income, by lowering or eliminating current fees.
1. Market upside – Uncapped» without market downside
2. Income floor (future guaranteed* income for life** can increase by up to 7%every year you defer starting to take payouts; the longer you wait, the higheryour payouts will be)
3. Low spread (1%)
4. Money for life, ** increasing income to protect against inflation**
5. Income that can double or even triple for home healthcare or long term careupon a qualifying health event**