FIAs with an S&P 500 13% Pt-to-Pt Cap!
If low caps have held you back from using FIAs, the new FIAs should help alleviate that worry. To get info on an FIAs with the HIGHEST par rates (50%) and pt-to-pt caps, click on the following link:
FIAs—A Killer Asset Class in a Lost Stock Market Decade
Both the Wall Street Journal and Barron’s came out with articles last week suggesting that we might be in for another “lost decade” in the stock market. Seeking Alpha had a similar article in 2020.
We’ve had lost stock market decades in the past (2000-2009 and 1966-1974 (nine years)).
How did investors do? Not well!
FIAs to hedge risk—as you may know, I’m a huge fan of FIAs as an asset class. The supporting math is nearly a no-brainer. This newsletter will further support this position and hopefully will motivate more advisors to use FIAs to protect their clients.
Let’s first look at the numbers from 2000-2009. The following chart is the S&P 500 vs. an FIA with a 45% par rate pegged to the S&P 500 (without dividends).
What would a client think of the above numbers? They’d wonder why their advisor isn’t using FIAs as part of a hedged portfolio. Also, the point of the above isn’t to say that FIAs are a replacement for equities. It’s to illustrate that they are a terrific asset class that ALL advisors should be using.
70% SPY with 30% FIAs—now let’s add to the above chart SPY with FIAs.
What did adding FIAs to the mix do? It turned a negative decade into a positive one. The FIA did what it was supposed to do, i.e., reduce risk and also provide a decent yield in up years.
AGG vs. FIAs as a hedge against risk
Most advisors know by now that the U.S. Aggregate Bond Index has been very correlated to the stock market. That’s why advisors who DO NOT use FIAs have no place to put “safe money” except in CASH. But the value of cash is going backwards due to inflation.
The following chart is a wake-up call to those who are NOT using FIAs. The comparison is from 2004 up to Sept 2022 (I assumed a zero rate of return in the FIA in 2022 and the current YTD negative return for AGG). Again, these numbers are stunning!
AGG had a CAGR of 2.98% over the 18+ year period.
The FIA with a 45% par rate had a CAGR of 5.13%! The annual risk of loss with an FIA? ZERO!
If you are not using FIAs and have read this newsletter and still DO NOT plan on using them, please email me or call me and tell me why.
Let’s end this newsletter by taking a look at 1966-1974
What would clients ask their advisors if they say saw this chart? Hey, you are using FIAs to help hedge the risk of my portfolio, right?
Again, the point of the example isn’t to compare an all-equity portfolio to FIAs. It’s to reinforce that FIAs are an asset class that ALL advisors should be using to hedge risk in portfolios.
*An S&P 500 index didn’t exist in 1996. Therefore, I took the returns of what the 500 stocks in the index would have returned, added in the dividends generated each year, and then taxed the dividends at the 25% income tax rate to come up with a net return for the last example.