Investing should be done with the intent of one, not losing money and two, earning more than inflation after income taxes. Playing it too safe is often just a slower but surer path to poverty longer term. And while insurance is the key to unlocking protected growth gains, providing your clients a fighting chance to impact their net worth in a significantly positive way is where you need to guide them.
Interest rates and consequently cap rates are way below the pace of “real” inflation. Yet, the earnings and dividends of corporations are ever increasing. Comparing a very popular indexed-annuity provider’s chart of the real returns versus the S&P 500, anything that simply didn’t go backward the past 11 years was acceptable. But the whole story is even better…most indexed-annuity charts use the S&P 500 index excluding the dividends of the index. Misleading? Duh, maybe just a little. (Can you see my tongue in cheek?) Read on for the rest of the story…
Using the typical indexed-annuity comparison chart, the indexed annuity has earned about 3.1 percent annually, on average, the past 10 years (8/31/2001–8/31/11). Using Thomson InvestmentView, there are 7,585 subaccounts available inside numerous variable annuity products with tons of carriers that returned net after all fees at least 3.1 percent annually. The “best” fund subaccount inside a variable annuity the past 10 years turned a $100,000 investment into $540,923.
Was it volatile? You betcha’ it was. It lost 48.4 percent in 2008 but gained back 82.5 percent in 2009. (However, the value never dipped below the original $100,000 invested.). And if you can protect the ultimate value of your clients investment with ever-increasing death benefits and protect their income with annual stepped-up living benefits, doesn’t this provide them the sleep insurance they need and the ability to remain savvy investors? What’s missing is your level of education and communication to relate this message to your clients.
Buy and hold generally hasn’t worked the past 11 years but as we near the historically established latter half of this secular bear market, the odds of getting it right are dramatically improving. Giving your clients the ability to comfortably wait it out in case things take longer makes all the difference. Learn more about minimum income and minimum withdrawal benefits inside variable annuities to help your clients achieve their long-term wealth and income goals.