OK. What's up with the S&P 500? Not much, actually. It closed today at $1325.19 down 7% from a year ago when it closed at $1426.37. 7% isn't a lot unless you think of it in dollars. If you had $100,000 a year ago you now have $93,000. You've lost $7,000. What could you do with $7,000. In the big picture, it's not financial ruin; however, it is a little disappointing.
"But Derek, you have to take the good with the bad. You know, win some, lose some"
Really. What have you heard about fixed index annuities? The concept is this: If you have money in one of these annuities and it has an annual reset, if the market goes down, your account balance stays the same. Then when the market goes back up, your interest earnings are based on an index such as the S&P 500. Your actual interest will vary somewhat from the actual market returns because your money is not directly invested in the market. The reason is that in order to offer you this protection, the insurance companies will apply a participation rate, a cap, or a spread that may decrease your actual return. It's a small price to pay for peace of mind. It is important to make sure that the amount you invest and the type of annuity you purchase is suitable for your particular situation. Most carriers have suitability standards that serve as a guidline to help you and your agent determine what is suitable; however, it is your money and it's up to you how much or how little of your nest egg you can't afford to lose. Ask your financial planner if it's something you may want to consider in these uncertain conditions. The key here is that by the time your direct investment in the market gets back to where you started, your fixed index annuity would have actually earned interest since you never went backward but you got to participate in the recovery of the market. Zero (loss) is our hero!
There is no one-size-fits-all approach to financial planning!
