Another thought provoking article by Ernie McDaniel
Years have passed since I last discussed in any column a stress-relief financial product that I now believe may be particularly appropriate for this strange time.
I will share the product name in a moment, but first let's talk briefly about “this strange time”. This is a time when the popular media and many investors seem optimistic about the stock market while respected gurus Bill Gross, John Maulden, Jeremy Grantham, and others are very much the opposite to optimistic.
I too have an opinion about the market. Whenever someone asks, as they often do, which way I believe the stock market will go, my stock (forgive the pun) answer is “up and down”. That usually brings a chuckle, but I mean it seriously.
The real issue, of course, is not whether the market will go up or down, it is when. And about that nobody knows. Not the real gurus, such as those I have named. Not the media gurus to which most people are regularly exposed and whom I will kindly leave nameless.
Getting back to our goal of stress-relief from the bouncing, jouncing, rollercoaster, up and down of the stock market, here is the product you should investigate: the fixed indexed annuity.
The fixed indexed annuity is not a security. In fact, it offers contractual guarantees backed by the full faith and credit of the annuity company (not the FDIC). As I say, it is not a security; nevertheless, it does calculate returns based on the movements of the stock market.
If the market goes up enough, the fixed indexed annuity goes up with it -- but not as far. If the market goes down during the period of calculation, the value of the fixed indexed annuity does not go down.
Sounds too good to be true, I know, but experience has proven it to work. The concept makes more sense if you consider that you sacrifice some potential return in the good years of the stock market in order to avoid sacrificing your accumulated growth, and preserve principal too, during the bad years. The fixed indexed annuity is for people with both a healthy greed and an equally healthy fear of loss.
There is no product that serves every person and no product that serves any person's every need. In this strange time though, with gurus giving opposite advice and even the trustworthiness of previously revered financial institutions being questioned, a product that does its job of preserving and building retirement money -- without you or me or any guru having to guess right -- could be a good deal.
I have a client who calls the fixed indexed annuity portion of his portfolio his retirement nest-egg “cruise control”. Another calls the fixed indexed annuity his “market recovery program”.
Still another client calls the fixed indexed annuity his “I don't know and I don't care” plan. When someone asks him what he expects the stock market to do, his answer is, you guessed it: “I don't know and I don't care”. He's found what for him is a perfect strategy for the “up and down” market that I (and anybody) can so confidently predict for the future. Sounds like stress relief to me.
Is the fixed indexed annuity the cure for your retirement nest-egg related stress? Hmmm…could be just what the doctor ordered.
Ernie McDaniel is a Chartered Financial Consultant and President of McDaniel Financial. He can be reached at 318-798-9022.
