Following our blog post from two weeks ago, we’ve discovered that there are other options than investing in the stock market, namely, indexed annuities.
The ability to lose money is a choice you make; not a necessary evil.
We also talked about when investing in indexed annuities, you will never lose the money you invested. If the market fluctuates up, you get some of the gains; and if the market goes down, you do not lose a penny, and will keep all the money you put in, plus any earnings from previous years.
Every investment has its weakness
The indexed annuity is not perfect. J
ust as a screwdriver does not solve all construction problems; the indexed annuity does not solve all financial problems.
But let’s talk this week about something that indexed annuities do very well:
Simulate having located and hired The Perfect, Clairvoyant Stock Trader.
When would the perfect clairvoyant investor invest into the market?
The day or moment before it begins to go up yes?
When would they sell or get out of the market?
The day or moment before it begins to go down, thus preserving all of the growth and earnings they’ve received.
How many people do you think are perfect clairvoyant investors? I’ve never met one – even the best investors on the planet sell a little before the top, or buy in a little after it starts to move up, so they give up some of the earnings they could have made. They are profitable, but they don’t necessarily time it perfectly. There’s an important point here:
You do not need to be perfect to make a fair return or even make a lot of money.
NO ONE gets ALL of the up moves and avoids ALL of the down moves.
Just for kicks, let’s pretend there was a perfect clairvoyant investor somewhere in Silicon Valley eating a bag of pork rinds while attentively watching the market on 29 separate computer screens.
His track record is absolutely spot on, he’s never lost money, gets in the moment before the ups, and gets out the moment before the downs. He never loses money, but when there is growth, you get some and he gets some. That’s fair. He has a waiting list of clients who want him to manage their money, and the clients who have been with him for years rave about his accounts. What if I could bypass the waiting list and get him to work with some of your money? With you, at least, give him some of you portfolio? For many people, the answer is “yes”.
Well, sad to say I haven’t found him. I know people with multiple computer screens, and in Southern California, where I live, a lot of people eat pork rinds, but no one gets these results. I did find the next best thing though;
The indexed annuity with an annual (or bi/tri-annual) reset.
Indexed investments are the only investments where you wait until after the year is over, look back and say, “was the market up or was the market down?”
Let’s say the S&P 500 dropped from 2000 to 1500, you won’t make any money that year, but the account will stay exactly the same. That is just as if the perfect investor saw the drop coming and sold all of your positions, keeping your money in cash.
Let’s turn it around and say the market went up from 1500 to 2000. You would keep SOME of the gains but not all of them. This is just like if the perfect investor grew the money, you received some of the growth, and he got to keep the rest. How much you get and how much you share would be determined by the crediting strategy we choose together. Hindsight is 20/20 and bottom line is this:
Indexed Products (CDs, Annuities and Universal Life Insurance)
The only tools that use hindsight to decide whether you are “in” or “out” of the Market.
In my opinion almost every one investor or retiree should have some money in the bank, some money invested in indexed products, and some money in the market. How much you put in each piece changes from one person to the next. I’m here to help you know how much to put in each place.