Indexed Annuities vs the Stock Market: A Two-Year Check-In
From time to time it helps to look back on what I’ve said to see if anything needs to be corrected or updated. Most will find that I’ve been pretty consistent and offered clarification on various topics when economic conditions change. Almost exactly two years ago everyone was lamenting a quick correction in the market that came off the S&P 500 all time high at the beginning of 2023. By October of that year it settled to a low point that was more than 22% loss from the top. It climbed back in a big way but everyone was nervous the whole time. It doesn’t really matter if you’re a buy and hold investor but if you don’t like the risk or income distributions are required, annuities can help in a big way.
I could go over all the reasons again for those who are new but let’s start by going back to what I said two years ago. Everyone wanted to protect money but the market was still down. It’s common to see the top of the market and consider it your bottom line for making a change when things go the other way. I suggested at the time that a fixed indexed annuity might be a good way to recover losses if someone didn’t want to risk losing more. On April 28th, 2023 the S&P 500 was at 4369, or more than 13% down from the previous record of 4725. At the time, a fixed indexed annuity with a 10% annual cap would have put the person in a position to completely protect the value at 4369. If the market advanced in the next year then the cap would have provided enough yield to lock in a return comfortably over the previous high that everyone lamented losing.
The S&P 500 closed at 5099 on April 26, 2024 confirming the 10% lock on a fixed indexed annuity purchased in 2023. Yesterday, the S&P 500 closed at 5525 which would have locked in an additional 8.3% interest. That money cannot be lost and you will never pay a fee for the protection. If that’s only a part of your portfolio then you are doing just fine.
I guess you can argue with me now as to which is the best way to maximize yield on assets but you can’t convince me that it wouldn’t have been a good deal. I have never suggested that someone put all of their money in one place and I know for a fact that most people never get all of the top returns in the market. On one side of things I know people who have never come back from maximum portfolio values in the past. On the other side I know guys who are true professional traders who have generated astronomical returns that most of you wouldn’t believe. They all agree that stability holds value and nothing does it better than the right annuity.
Some will point out that the indexed annuity did not keep up with the market but that’s being rather picky. It’s a safe asset. The market did go much higher and only recently relinquished a lot of the gains. Over the two year period the market only exceeded the annuity by about 5% total return and the annuity would have been in a good position to continue if the market recovers and keeps going higher. But the purpose of the annuity is what’s most important. If the market drops in value over the next year the annuity won’t lose value and that’s why people like it. You don’t have to agree that it’s a good place to put money but you’ll have to admit it’s not a bad one either.
Over the past two years the stock market has produced the best overall yield and indexed annuities are likely a close second in terms of asset classes. Timing is obviously important as I’ve seen annuities produce returns either higher or lower. In the same sense market timing is critical because most people don’t get in or out at the right time. Most people understand the tradeoff and those who choose the safest route to chase yield have good potential with an annuity. It will always be the safest place to put money and in terms of pure growth contracts there are no fees charged for the protection. The deal is to accept less return in exchange for protection but continued volatility can come to favor the annuity. We’ll see what the next few years hold in store.
I get a lot of good feedback on this site and what I post but sometimes it’s negative. People take shots from time to time and it doesn’t really bother me because I’ve got years worth of work and research documented on the site. Things have changed dramatically over the years I’ve been running this website and strategies change because of it. I’ll always correct any mistakes or update information to keep this as accurate as possible. What’s something I said in the past that you’d like clarified or updated? If you can come up with some good ones I’ll take care of it in future episodes.
Enjoy the weekend…
Bryan
Watch Podcast Episode #176: Indexed Annuities vs the Stock Market: A Two-Year Check-In
Download Podcast Episode #176: Fixed Indexed Annuities vs. the Stock Market on Apple Podcast
Last Updated on April 27, 2025 by Bryan Anderson
