by Colin Burr
Why put yourself in a position where you're affected by the roller coaster of market volatility? By Christopher Music
With all of the volatility of the stock market, have you ever wondered what alternatives are there to the stock marketplace?
1 alternative to investing in the stock market, especially throughout times of exceptional volatility is in a Fixed Index Annuity (FIA), a hybrid between a fixed and variable annuity, for long-term growth.
What's an annuity?
An annuity is an insurance item offered through insurance businesses that grows tax-deferred more than time and may offer a lifetime revenue during retirement.
The benefit of a set index annuity is that they are fixed annuities, which means that the principal is assured and there's a assured minimum rate of return on these kinds of accounts.
The -index- component comes in simply because annual returns are based in component on the cost improve of a stock index (excluding dividends), such as the S&P 500. When the marketplace goes up, a portion from the gains on an annual basis, up to a -cap--say 5 to 10%, are locked in and credited to the account as interest. When the market goes down, no losses are posted within the account.
The reason these annuities make sense for retirement planning is the fact that the account balances can never go backward. This indicates that the market can go up, down or sideways and just gains are credited. In addition, a few of these annuity contracts have riders that can create guaranteed income for life.
The investing landscape has changed.
This last credit crisis has proven a few interesting information: ?1st In order for an investor to accurately assess risk, he must know all relevant material facts regarding an investment. This is impossible when there is wide systemic misinformation or undisclosed information, resulting in a gross mispricing of risk. A good example of this is the mis-rating of mortgage-backed securities from Moody's and Standard & Poors.
?2nd The economic advisors of our government and corporate institutions were surprised that this crisis happened. When they can't predict future economic phenomena based on mountains of data and insight at their disposal, how can an average investor have any idea what to do? The truth is the fact that it's impossible to know all from the correct data essential to successfully navigate the world-wide investment markets over the lengthy term, as well as the long term outcomes of arbitrary government fiscal and monetary policy.
?3rd The costs of investing in the market via mutual funds, typically the most popular form of investing, are very high. When all costs are included like portfolio management and trading costs for starters, the costs can easily exceed 3% in actively traded funds.
?4th As outlined by Dalbar (www.dalbar.com), the average stock market investor made the average return of 1.87% from 1988-2008, while the S&P 500 averaged 8.35%. Why? Simply because amateur investors love to sell when the market is down and buy more in periods of market bubbles. Empirical evidence has proven that people react irrationally under threat of loss and can actually sell out at the bottom of a market in order to -prevent further losses-.
How long does it take to make up a loss?
If an investment account lost 40%, then just how much percentage return would it take to get back to even? 40%? Nope. 66%.
The percentage returns are based on smaller numbers therefore it takes more return (and therefore more risk) to get back to even.
Some of these innovations within the insurance industry provide persuasive choices for the average investor. Insurance companies do 1 thing very well-manage risk.
Today there is more risk within the investment markets than previously because of propaganda, authoritative opinion, and downright fraud.
Why put your self at risk?
Why put yourself in a position where you are impacted by the roller coaster of marketplace volatility? How important is peace of mind knowing that your account wouldn't lose one penny once the stock marketplace loses half of its value? Booms and busts are part of the investment game but I would imagine that the average investor has enough to bother with rather of fretting more than losses in his nest egg.
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