Half the Winnings - None of the Risk
What if you could show up to a Casino, sit down to a table (any game will do) and start playing without putting up a dime of your own money. Now, here's the deal. If you win, you keep 54% of the winnings. But, you can't lose. Would you take that bet? Every. Single. Time. You know you would. I get to play without the risk of loss, but the "catch" is I keep half the winnings?! Yeah, I'll take it.
So, most people don't know about these financial tools called Fixed Indexed Annuities, but that's essentially how they work. They're fixed annuities, so they have no risk of loss, and their growth, or amount of interest credited each year, is based on the performance of a given stock market index (hence the name).
Here's how it works. If the stock market were to grow 20% this year, your annuity would be credited 10.8% interest because you have an annuity with a 54% participation rate and no cap, or limit. However, when the market is down 11.73% the next year your annuity holds steady. Because you only participate in gains and never losses you experience much more stable long-term growth than traditional market investments.
Now, in my analogy I mentioned you wouldn't be using your own money. Let me address that here. Not all annuity companies handle these things the same way. Some charge fees. Some don't. In those years where your net return is 0% because the market is losing you don't need fees pushing you into the red. Make sure your advisor understands the fees associated with the annuity you are discussing. We work with companies that have the best participation rates and no fees.
If you're planning for your retirement and struggling with the stock market's ups and downs a Fixed Indexed Annuity can be your "ace in the hole" to help investing feel less like gambling on the stock market and much more like planning for your future.