To receive a gain on your money, or your account, of course.
Or is it really to capture a gain? What value are unrealized gains that at some future date due to the cycles of the market are taken back? How do you capture a market gain?
You need to sell your funds.
But now the dilemma is – How do you continue to benefit from the performance of the market if the dollars are no longer in the market?
Wouldn’t you have to re-enter the market?
But now you may be un-realizing your gains. Right? If you put previously captured gains back into the market they could be lost.
How do you solve these problems?
With a Fixed Index Annuity last year’s ending point is this year’s starting point. An index linked annuity credits interest based on the upward movement of an index (such as the S&P 500) while protecting principal and previous earnings from market downturns. Imagine if every year the market (S&P 500) went down, you could demand your money back, and then buy more at the lower price? With an FIA, in a year when the market moves down, you retain your principal and previous earnings (or as I said previously “demand your money back”), and now you are linked to this year’s new lower index value (it’s as if you bought more at the lower price) and you are positioned to earn interest on any upward movement from this new lower index value. This is the power of an FIA. It’s heads you win, tails you don’t lose. And all this happens on auto-pilot, every year, without having to liquidate funds to capture your gains.
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“What if every year the market (S&P 500) went down, you could demand your money back, and then buy more at the lower price? Would you want to buy that index mutual fund?” Who wouldn’t, right??
Well, that’s the beauty of Protected Growth planning using fixed index linked annuities, or FIA’s. Last year’s ending point is this year’s starting point. An index linked annuity credits interest based on the upward movement of an index (such as the S&P 500) while protecting principal and previous earnings from market downturns. So, in a year when the market moves down, you retain your principal and previous earnings (or as I said earlier “demand your money back”), and now you are linked to this year’s new lower index value (it’s as if you bought more at the lower price) and you are positioned to earn interest on any upward movement from this new lower index value. And all this happens on auto-pilot, every year! That’s why it’s a strategy that works in any market. Now, having said that, I also must disclose to you that this strategy is subject to certain caps and limitations. So, how well does it work? Exceptionally well, according to a study conducted by the Wharton School of Business. Here’s the (June 2009) quote from Forbes magazine:
“Since 1995, these [equity-indexed] annuities have easily outpaced the S&P 500 and bond indexes alike. ‘There is no asset category that outperformed them. We were extremely surprised, really just amazed,’ says David Babbel, professor emeritus of insurance and risk management, who conducted a study of equity-index annuity returns beginning in 1995…(and ending Jan 1, 2009)
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The ‘old’ normal is the way things were before the financial markets fell apart. In the ‘old’ normal view – still preached by politicians of both parties and amplified by the media and a greedy financial industry – you should stay with what you were doing before.
Have a short memory. Buy/keep stocks because they “always” go up, buy houses because they “always” go up, and spend like mad because there are “always” plentiful jobs available.
However, there are some key problems with the ‘old’ normal. These problems were exposed in the last two years. But they are being swept under the proverbial rug of rising stock prices since March of this year. These problems include continued rising unemployment, too much household debt, unaffordable home prices, and an entire economy geared to consumption over production.
But that is all changing according to Bill Gross of PIMCO. PIMCO is THE company when it comes to bonds and bond mutual funds. And Bill Gross is perhaps the best bond mutual fund manager ever.
Mr. Gross says that we have entered a world of slower economic growth, a world defined by de-leveraging (paying off debts) and re-regulation. It’s a world he calls the ‘new’ normal. He wrote the following in a recent note to PIMCO clients:
“If you are a child of the bull market, it’s time to grow up and become a chastened adult; it’s time to recognize that things have changed and they will continue to change for the next – yes, the next 10 years and maybe even the next 20 years.”
What Mr. Gross says makes sense. Bear markets do NOT end quickly – the last bear market lingered for 14 years. And bear markets do not end with stocks still trading at well above their historical norms, currently at nearly 20 times earnings. And at 20 times still declining earnings, I might add. Bear markets also do not end when investor optimism is high. They end when investors are disillusioned and disappointed.
Mr Gross has suggested that investors would need to question many long-held beliefs as they adjust to this new normal. Among them is the idea that risky assets such as stocks are always better for the long run. In the subdued economic climate ahead, risk-taking is simply not going to be as rewarding…
“The world is traveling on a bumpy road to a new normal”… Mohamed El-Erian (PIMCO CEO).
What about you? Are you ready to navigate the new normal? Are you ready to define ROI as Reliability of Income in the new normal? Are you prepared for 27 years of income, beyond age 65? (For a 65yr old couple there is a 40% probability that at least one spouse you will live to age 92) Are your savings and assets positioned so that you will never lose money and never run out of money in retirement? Are your savings and assets protected from inflation risk, so that you will maintain a desirable standard of living as long as you live? Or, do you need help to create reliable, predictable income to guarantee you never run out of money in retirement?
Protected Growth planning takes the complexity and guesswork out of retirement and income planning.
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