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“Why Would I Ever Consider a Fixed Index Annuity?”

The Comprehensive Advisor Newsletter

June 2019

Fixed Index Annuities (FIA) have always been a great solution for a client's retirement needs. However, FIAs have evolved and have become a great tool for meeting a client’s investment management needs. While an FIA is not a silver bullet investment, it has many qualities that can complement an asset allocation. In a world where clients and advisors juggle risk, they can play a major role in mitigating risk in a client portfolio. This month’s The Comprehensive Advisor Newsletter, outlines how using an FIA may help you address risk in your client’s portfolio. A reminder that FIAs are now available to “fee-only” advisors as well.

Equity Market Risk

If you or your clients are concerned about market risk, FIAs allow for market participation through selected indexes with downside protection. Some FIAs have caps or spreads, while others do not. Returns typically average 4-8% which is in line with traditional 60/40 allocations, but with less volatility.

Interest Rate Risk

If you own bonds funds and are concerned about rising interest rates, FIAs can provide better downside protection in a rising interest rate environment. The worst case 0% return of FIAs (before optional rider costs) can have a positive impact to a portfolio over a potential negative return with a bond fund. If the selected index has positive returns you can participate in some or all the growth depending on the terms of your contract.

Behavioral Risk

In the 4th quarter of 2019, the markets experienced a big pullback only to be followed by a great first quarter to the year (approx. +15% for the S & P 500.)  Then in the end of April volatility returned. This increased volatility can wreak havoc on even the most disciplined investor. Behavioral risk can reduce or eliminate positive performance by investors selling and buying at the wrong time. FIAs usually average 4-8% returns with the worst case in any given year of a 0% return (before optional rider charges.) This consistency of returns can help the overall experience of your client and help them stay invested.

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