Why You Should Consider Indexed Annuities

Indexed annuities have become the new hedging product for those investors and savers seeking greater returns than fixed annuities and certificates of deposits offer, without risk to their money. One caveat here is that some indexed annuities expenses could generate a negative return, so it’s important to investigate indexed annuities that will never pay back less than what you put in.

Indexing has always been a popular investment. It’s been called the poor man’s portfolio. Low cost and broadly invested, it can be a suitable option for those whose goals and risk tolerance fit the investor’s profile. There is a significant inventory of domestic as well as foreign indices to choose from. And the indices can be purchased with tax advantaged annuities and life insurance. Keep in mind that annuity and/or life insurance policy owners don’t participate in dividends, which at the onset may appear as a negative; but a positive characteristic or tradeoff is that the policy will never credit less than zero in the crediting account. Now that’s not to say that you couldn’t lose money because even in a zero crediting year you may have policy expenses that could generate an overall negative return.

Indexing appears to work best in a ten-year period where market cycles can deliver a high probability of success. Even during the last decade indexed annuities using the S&P 500 Index posted a crediting ten-year return of over 6%. Also the ten-year period seems to be the cross over year when participation, spread, and capped rates all appear to coalesce. So it could take the guesswork out of selecting one of those three methodologies.

Indexed annuities have definitely evolved over the years and are more effective than previous iterations. But one constant throughout the years is the love affair with the S&P 500 Index, which is selected 72% of the time with annuities and life insurance. The S&P 500 Index also well known and even has its own future volatility index called the Vix Index.

Talk to a financial adviser who has access to the vast inventory of indexed annuity products and select one suitable for your financial goals.