With the volatility of 2022 looking like it will carry over to 2023, many people are looking for safer alternatives. In some cases, this looks like a fixed annuity or CD, but clients have asked for an alternative that still allows them to participate in the market while limiting their risk. There are a few ways to accomplish this but one of the most common is to use an indexed annuity. Indexed annuities allow you to participate in an index’s performance while also providing some or all protection against loss. That may sound like something everyone should use, there are factors that need to be considered. The more protection the insurance company gives you over the investment, the more profit potential they want to receive in return. This is accomplished by capping your gains. An example may help illustrate the general workings of an indexed annuity, the terms of the annuity will be as follows:
6 year indexed annuity linked to the performance of the S&P 500 with your downside capped at 15% and your upside capped at 22%.
What this means is you will be exposed to the gains and losses of the S&P 500 but you will at most lose 15% in any given year throughout the 6 year period; each time you reach your anniversary date your gain or loss is locked in for that year. In exchange for capping your losses at 15% the insurance company caps your potential gains at 22%.
The crediting methods, timelines, and which index it is linked to can vary by company offering but the above example is common to see out on the market.
If you think this type of product or something similar would suit your needs, reach out below so we can start the conversation.