Marc Cuniberti With the latest rally in stocks, investors must be wondering if this recent bout of green is just another in a long series of bear market rallies which will end in another gut wrenching sell off.
We have seen this movie before in the year 2022. Stocks crash, teeth gnash and hands wring, then the markets rallies, and hope springs eternal that the portfolio bloodletting is finally over. A then a few days or weeks pass, and another crash takes place, seemingly worse than the one before it.
Repeatedly beaten down in discouragement, investors can find themselves not knowing what to do. Calls to their advisor yield little other than a recording saying “stay the course”.
Although you’ve been told the markets always recover, no one really knows how far it will go, how long it will last, and indeed, if it ever comes back at all. I mean, it IS possible.
There can be solutions for less tolerant investors. As covered previously here in Money Matters, Inflation Protected Bonds, called I-Bonds, from the U.S. government, are currently paying 9.6% APR and are 100% guaranteed. The interest rate does adjust every 6 months so the yield may increase or decrease over time.
(You can read about I-BONDS here: https://moneymanagementradio.com/home).
Rates at your local bank or credit union are better than they have been in years.
Cd’s, high yield savings accounts and short term Treasuries rates (U.S. government debt) are nothing to sneeze at and might be worth a look.
Another not so well known option is what I call a “Triggered annuity”.
An annuity is a contract between you and an insurance company. In the simplest form, you give the insurer a lump sum, and they promise to pay you a certain amount in the future, either in a lump sum or payments stretched out over time.
Although there are many variations on annuities, the triggered annuity has some unique features. The specific annuity in this example measures a stock index on the day your annuity takes force. This particular annuity measures the Standard and Poor’s 500 Index (S&P500), one of the largest stock indexes in the U.S. stock market. One year later, the index is measured again. If the index is exactly at the same value or up by any amount, the annuity company credits your account 8%. That means even if the index rises by only one millionth of a percent, you still get 8%.
Every year the process repeats.
If the S&P increases again by the next anniversary date, you get another 8%. Once credited, the gains can never be taken back, which means it can only stair step up and can never go down. The company caps your gain at that 8% a year so if the index goes up by more than 8%, you still only get the 8%. On the optimistic side of things, if the index goes up by even only one iota every year as measured on your anniversary date, at 8% a year, you would double your money 9.1 years. If the index drops in any one year, you don’t gain anything but you also don’t lose any money. If the index drops every year for 7 years (the term of this annuity), they will pay you a minimum guarantee of 1% compounded over the life of the annuity which comes out to about 7.2%.
You will either get the 7.2% return or the gains in the market, whichever is greater. You can also withdraw 10% a year after the first 12 months if funds are needed. Withdrawing more will incur early withdrawal penalties and other terms apply but an annuity such as the triggered annuity may be a way for investors to participate in up markets yet have their principal guaranteed against loss.
In prolonged market crashes such as the one we are now experiencing which is now almost a year in duration, a triggered annuity may go a long way in calming investor nerves. After all, who knows how much longer this current market correction will occur and how low it will go.
“Watching the markets so you don’t have to”
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(As mentioned please use the below disclaimer exactly) THANKS (Regulations)
This article expresses the opinion of Marc Cuniberti and is not meant as investment advice, or a recommendation to buy or sell any securities, nor represents the opinion of any bank, investment firm or RIA, nor this media outlet, its staff, members or underwriters. Annuities are not FDIC insured and are insured and guaranteed by the underlying insurance company only. Early withdrawal penalties may apply. Annuities may or may not be suitable for all investors. Mr. Cuniberti holds a B.A. in Economics with honors, 1979, SDSU, and California Insurance License #0L34249. His website is moneymanagementradio.com, and was recently voted Best Financial Advisor in Nevada County. 530-559-1214.
