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June 30, 2009 at 08:00 PM
The Dow Jones Industrial Average ended August 1929 at 380.3–a monthly close it would not exceed until November 1954, over a quarter of a century later. By June 1932, the Dow was at 42.8–down 89 percent from three summers prior. How would an index annuity approach have coped with the Crash of ’29?
The Thirties were horrendous times for investors. Even though the market rallied back from its 1932 low to close at 187 by February 1937, that was still less than half of where it had been in the summer of 1929. Adding insult to injury, the Dow then gave back roughly half of these gains by 1938.
Some speculation
Although there is no way of knowing what rates might have been for a fictional “New Deal Annuity,” I applied a 30 percent participation rate to any annual gains, and looked at what the annualized 5-year returns would have been if I could have bought an annual reset index annuity every month, beginning in August 1929, for the next five years. In my exercise the first five year period ends in August 1934, the last one ends August 1939, and I computed the annualized returns for each period.
