Same Tax Advantages
Most investors understand the powerful benefits that annuities can potentially provide--tax free accumulation of earnings until withdrawn, the ability to grow your hard earned assets 30% to 40% faster than taxable alternatives, and automatic probate free transfer to heirs.
A Different Twist
Until now, there were only two types of tax deferred annuities you could purchase - either Fixed Annuities or Variable Annuities.
Fixed or "Guarantee Return" Annuity plans have been an attractive investment over the years as they allows you to lock in a certain fixed rate, usually for a period of 12 months, sometimes longer.
However, when interest rates decline, fixed annuity yields can suffer because your yield is tied to the general account of the insurer. General account assets are usually heavily weighted towards fixed yield instruments like government bonds. As a result, you may experience low returns, no control and no exit options.
On the other hand, Variable Annuities can offer the potential for higher possible returns, however, the burden is on you and/or your advisor to select the right accounts and adjust your portfolio in anticipation of market swings or corrections. Moreover, your principal is not guaranteed or if it is, there might be strings attached.
Hence, insurers were faced with market forces that demanded a "wedding" the two concepts or benefits placed together: Principal Guarantees with Equity-Linked Returns.
Well, finally it's available and it's a major breakthrough opportunity for investors because now you can capture the potential growth of the stock market while still guaranteeing your principal.
It's a Hybrid Solution
These plans are called Equity-Linked Annuities (ELA's) and are offered by some of the strongest financial and insurance institutions in the country.
Index Your Gains to the S&P 500
Depending on the plan you choose, ELA's can be
the ideal combination of stock-market-linked returns with no principal risk
and here's why:
Depending on the plan you choose, increases in the S&P 500 - over a given period of time (as specified in your contract) are credited to your annuity account 100% tax deferred. If the market "corrects" or posts a negative return in any given policy year, your principal is still guaranteed. Moreover, some companies will credit a minimum fixed rate, usually 3-4%, on all or a portion of your deposits.
All told, you enjoy the potential advantages of long term equity type investing, the potential for inflation-beating returns, 100% tax deferral and superior principal protection.
Equity-Linked Annuities at Work
As with any other investment opportunity, investors like to see more than just "hypotheticals" or "promises". Instead, they want to see past, actual results.
The Four Most Common Indexing Methods
The four most commonly used methods of indexing your gains are as follows:
Each method has certain advantages and disadvantages, depending on how you and your advisor view the movement of the stock market over any given time period. Just click on the links above to review a BRIEF description of each.
Equity Linked -- No Risk -- Why the S&P 500?
The S&P 500 now represents nearly 75% of the U.S. equity market. Since 1968, it has been the most widely accepted and broad measure of the performance of the U.S. stock market. The market as measured by this index has outperformed inflation, fixed rate products, CD's, corporate and government bonds. Of course, there's no guarantee that this will continue - but certainly worth noting.
This type of product - which is not a security - grows when the stock market is growing, and isn't shrinking when the stock market is declining. Perhaps, you might find this attractive.
Action To Take
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Disclosure: THIS TYPE OF PRODUCT IS NOT A SECURITY. "S&P", S&P 500 and "Standard & Poor's 500" are trademarks of The McGraw-Hill, Inc. and have been licensed for use by insurance companies. These annuities are not sponsored, endorsed or sold by Standard & Poor's. Standard & Poor's makes no representation regarding the advisability of purchasing the product.
Copyright © 1998
Fielder Financial Management, Ltd.
All Rights Reserved.
Securities and investment advisory services offered
through Fortune Financial Services, Inc. member FINRA, SIPC.
Fielder Financial Management, Ltd. not affiliated with Fortune Financial Services, Inc. Mark Fielder, Financial Professional, CA. Insurance Lic. # 0690576.