Equity Index Annuity: Safe Place to Grow Your Money
By Robert Valentine, Certified Senior Advisor
Would you like an investment that pays gains based on the stock market, yet helps protect
your principal when the market declines?
It’s not every day that you find the opportunity for potential growth with true safety in the same
financial vehicle. Usually investors are compelled to make one of two choices, either they give
up a degree of safety in exchange for a greater potential for growth or they accept less growth
in exchange for a higher degree of safety. Thanks to an innovation in the insurance industry,
you can have the potential high returns available in the stock market and the security of a
guarantee—it’s called an equity index annuity.
Equity index annuities are excellent alternatives for investors seeking safety in a low interest
rate environment or a volatile market. Here’s how they work, your return is based on the
increase of a stock or equity index, such as the S&P 500. If stocks rise, you benefit from the
increase. If stocks fall, you do not lose any money, most contracts guarantee a minimum
return, typically 3%. This is what makes these newer products so attractive to retired persons
and to those approaching retirement.
Now, imagine this scenario: Suppose you and I take a trip to Las Vegas for a week. I decide
to make you the following offer. You can gamble at one of the casinos as much as you like for
the entire week and I will guarantee you in writing that no matter how bad you do you will not
lose. In fact, I guarantee that you will walk away from the tables with no less than what you
started with, plus some interest. If you win, you get to keep the winnings.
Would you take me up on the offer? I would imagine given that opportunity, you would load up
with casino chips as soon as possible. So, what’s the catch? You can’t lose a dime, but the
catch is, you have to play for the whole 7 days, otherwise you may have to give back a small
portion of your chips. In other words