Getting older generally comes with a number of changes in our lives – and as it pertains to saving and investing for the future, it is important to reduce market risk. That way, a larger portion of those savings can remain intact, even in light of negative market performance.
But the financial vehicles that have traditionally been thought to be safe have been offering pitifully low rates of return for more than a decade now. So, relying on CDs and money market instruments to carry you through isn’t an ideal strategy.
In fact, it’s one that can actually cause you to lose purchasing power over time, and in turn, struggle to buy the items and services that you need in the future as prices rise.
Fighting Back from Investment Losses
Nobody likes to lose money. But for younger investors, the longer time horizon can allow the opportunity to “make up” for previous losses. Even so, though, investors of any age who incur a loss in their portfolio will have fewer assets to work with to offset it, causing the remaining assets to work that much harder just to get back to square one.
Plus, the larger the loss, a larger amount of gain is needed for getting the portfolio back to even again. And quite frankly, there is no guarantee that the portfolio will ever come back to where it once was.
In this case, if the losses occur when you are close to, or in, retirement, the more impactful they will be to your standard of living, and even to the longevity of your savings. So, bear markets can be very expensive!
But having “bear market insurance” can alleviate loss, while at the same time allowing you to gain from positive market-related returns.
How to Keep Your Principal Safe with Bear Market Insurance
For most people, insuring their residence, their vehicle, and other important assets is a given. That way, even if a damaging event occurs, the insurance coverage can help to make up for some – or even all – of the financial impact.
So, why don’t more people insure their savings and future income?
We’re not sure. But there are strategies for doing so. One is to purchase a fixed index annuity or FIA. With a fixed indexed annuity, the return on your money during the accumulation period (i.e., the period of time before the annuity is converted over to an income stream), the return is based on the performance of an underlying market index, such as the S&P 500. (There is also typically a fixed account option where you can place some, or even all, of your funds).
When the underlying index performs well, the annuity is credited with a positive return – oftentimes up to a certain maximum, or cap. But, if the underlying index performs poorly during a given year, the account is not credited with a loss, but rather a 0%.
Because of this, your gains are essentially locked in, never to be lost – even if the market goes down in the future. This can help to ensure what you’ve already gained. Plus, once the tracked index starts to perform in the positive again, there is no need to “make up” for prior losses, but rather the funds can continue building up.
In addition, as with other types of annuities, you can choose from a variety of different income options with a fixed index annuity – one of which guarantees that you will continue to receive incoming cash flow for the remainder of your life.
Taking the Necessary Steps Towards Protecting Your Future Financial Security
Having bear market insurance with a fixed indexed annuity is a viable strategy for protecting what you have already earned, without having to worry about losing it in the future. These financial vehicles can also help to optimize growth by adding safety and preserving past returns.
But before you purchase just any FIA, it is important to determine which one is right for you. Because fixed index annuities can come with a plethora of “moving parts,” having an expert on your side can ensure that you have all of your questions answered and that you choose the annuity that best meets your particular needs.
At Annuity Gator, we’ve been educating consumers about how annuities work for many years. With our in-depth process of stepping through how these products operate, as well as comparing the performance of different annuity offerings, you can easily narrow down your search for which annuity is right for you.
Have more questions? Want to determine how a particular annuity might perform, given your financial needs and objectives? If so, just reach out to us here and set up a time to chat with one of our annuity experts.