How to Play the Stock Market with No Risk
by Todd Bauman, IAR—Bauman Advisory Group
With the stock market making new highs, the buzz on the street is that we are due for a correction. I think the old saying, “What goes up, must come down,” just might be true. When you look at a chart of the S&P 500®, it hit an all-time high in the year 2000. It then dropped approximately 48 percent over a three-year time period. It finally bottomed out in 2003, and started its ascent back up over a five-year time period to another all-time high in 2008. It then dropped approximately 56 percent. In March of 2009, it began its ascent over a five-year time period to another all-time high. And it did not stop there! The market has continued to reach new highs. So to recap, all time high then huge drop, all time high then huge drop, all time high—What do you think will happen next?
Well, I do not have a crystal ball, but studying the chart, it sure looks like we are headed for another drop. If this scenario concerns you, you might want to consider investing your money into a Fixed Indexed Annuity. A Fixed Indexed Annuity is a contract with the insurance company for a specific period of time called the term. There are many features that should be considered before purchasing one, however. I have listed some of them below.
This type of annuity is an account that protects your principal, so if the stock market has another huge drop, you will not lose any of your principal. You will not earn any interest that year, but more importantly, you will not lose your investment either. If the market goes up, you will earn some interest. You give up some of the upside potential to get no downside risk. A lot of people who are averse to risk are willing to give up of some of their earnings to protect their principal.
The big misconception I hear all the time is that annuities are illiquid. This is not true. Most annuities allow up to 10 percent free withdrawals every year. If you withdraw more than 10 percent, you will incur a surrender charge. The surrender charge usually decreases over time, and when your term is up, it is 100 percent liquid should you decide to cash it in.
Some fixed annuities have fees and some do not. The Indexed annuities that have a fee will usually have some type of guarantee with which it is associated. I call these guarantees bells and whistles.
Bells and Whistles
For an additional fee, you can add features to your Index annuity that can protect you in the future, if needed. Some of the typical features are a lifetime income, long-term care, or a death benefit to your heirs.
- The lifetime income feature is good to have for someone who will need to generate an income stream that they will never outlive. You do not lose control of your investment, and should you pass away, the balance of your account is passed on to your beneficiaries.
- The long-term care feature is an option that can provide benefits should you need home health care or nursing home care.
- The death benefit feature is just that, your account accumulates at a certain percentage rate and should you pass away, your heirs will receive that value immediately or over a set period of time, but beware of this feature; you have to die in order for it to be received. Try not to use it too soon!
So if you want to retire in the near future, or are already retired, one thing is clear, retirement strategies today are different than they were in the past. The economy is completely different today. People live longer, and the need to protect your assets and income should be at the top of your list.
A good Fixed Indexed Annuity can help you survive financially during your retirement so you can have peace of mind.
Todd Bauman is an IAR for Bauman Advisory Group, a Registered Investment Advisor in the State of Nevada. He is also an author and public speaker in Southern Nevada. He can be reached at (702) 897-9997 or at firstname.lastname@example.org.