Let me mention a strategy that I’ve advocated for years for conservative investors and retirees who can’t afford to lose their principal: stock-indexed annuities. My wife bought stock-indexed annuities right before the 2008 financial crisis and has doubled her money — and won’t lose any money this year.
Stock-indexed annuities are issued by insurance companies. They guarantee your principal every year. If the market drops 30%, you lose nothing. What’s the catch? In most cases, the contract limits your upside when stocks go up. For example, Lincoln Life offered a 50% participation rate on the upside. If the S&P 500 rises 30%, you would gain 15%. Due to the high demand for its indexed annuity, the company just cut its participation rate to only 20%. So, I’m not recommending that one right now.
How do insurance companies offer this guarantee without losing money? Traditionally, they hedge their positions by purchasing 70-80% in high-grade bonds and government securities and then invest 20-30% in stock index call options.
Most insurance companies will probably be following Lincoln’s example and cut the participation rate soon. One indexed annuity that still allows 100% participation with no cap is Morgan Stanley’s Global Opportunities Indexed Strategy, which includes U.S. stocks, and is found in the Delaware Life Retirement Stages 7 Index Annuity. So, if you are interested in investing in stock-indexed annuities, I suggest you contact Todd Phillips, Estate Planning Specialists, in Arizona now. Call him toll-free at 1-888-892-1102.