Max ValaVanis, CFPⓇ
In my years helping retirees plan their finances, I am consistently faced with this priority decision: where can we achieve strong returns while minimizing risk? As any Financial Advisor can attest, this is a common question. Unfortunately, many advisors fail to see the potential pitfalls of placing too much faith in the financial markets. Do not forget that the stock market was an uncommon place to invest in until the last 50 years! With the advent of mutual funds, variable annuities, and retail brokerage accounts, consumers have almost unrestricted access to the stock market. This can be good for some people and, of course, has been a disaster for others.
A relatively new retail investment exists for those who wish to invest in the stock market but fear losing money. In 1995, an insurance-based investment hit the retail market, albeit slowly. In that year, investments were a paltry $200 million nationwide. By 2024, sales are expected to top a staggering $100 billion. Yes, that’s a billion with a ‘B’! Why such demand? The answer is simple: The opportunity for safety and growth – on the same dollar.
The investment is called a “Fixed Indexed Annuity” or “FIA”. As with all annuities, the growth is not taxed until withdrawn, and the assets bypass probate at death. But that is not why nationwide sales are skyrocketing. In an FIA, the investor can index upwards with the market: the Dow Jones, S&P 500, the NASDAQ, or all three. Interest is added to the annuity annually, and the resulting balance creates a new guaranteed minimum for the following year. In the event of a down market, the principal is protected. Yes, it’s true! The account can grow in a positive market and does not lose money in a negative market. Heads, you win! Tails, you don’t lose!
The next feature of the FIA is ingenious. Unlike most other investments, the profit-taking is automatically done for you. In a year with a gain, it is paid as interest and locked in! In many different investments, your profits are still at risk of being lost the following year. We have all seen this in the stock market, a good year can be eliminated by a subsequent lousy year, and so on. An FIA removes this risk altogether. We call this feature the “annual reset.” The worst market return for an FIA is a zero gain for the year, which is monumentally better than losing a fortune. With only the upside and none of the downside market risk, this may be an interesting product for nervous investors.
As with any investment, the devil is in the details. FlAs are issued only by insurance companies, and they all have particular contract provisions and designs. With hundreds of different options, no two FlAs are alike. The nitty-gritty needs to be understood before any investing begins. If you like the idea of a safety net underneath your nest egg and still want better returns than the bank or other low-rate products, this may be an option for you. If this interests you, please give our office a call. We offer free, no-obligation appointments for all readers of the Senior Scene and can meet at our Melbourne or Rockledge offices or via Zoom. You can call ValaVanis Financial at (321) 956-7072.
Securities offered through J.W. Cole Financial, Inc. (JWC) Member FINRA/SIPC. Advisory services offered through J.W. Cole Advisors, Inc. (JWCA). ValaVanis Financial and JWC/JWCA are unaffiliated entities.