Consistency is the Key to Index Annuities

Newsletter

It has been an up and down year, to say the least and coming off of the holiday weekend I thought it best to remind everyone where we were a year ago.  Perspective is valuable when analyzing options for long-term financial health.  Two contracts I wrote about last year are up for renewal again so it seems like a good time to give you all an update on how things are going.

A few weeks ago I showed everyone an example of a contract that did very well in its first year but it is important to remember that while big yields are nice, consistency is far more important.  So I went back to the July 10th newsletter from 2019 to remind myself of the context of the time.  It’s interesting to see how similar the years have been.  Each of the past two years have seen massive volatility in the stock market, political and social distress and wild changes in interest rates.  Both times the market finished positive by a reasonable amount.  Read it below if you’d like to compare the two yourself and see where these contacts were last year.

Read it here:  Index Annuity Performance from the Past Year

Again the S&P 500 is up about 6.5% from this time last year so anyone who rode out the treachery did just fine in the end.  It is nearly identical to the same time last year.  For the most part, no one’s position is a whole lot different than two years ago.  People that like the way I do things appreciate the smooth ride and it turns out that neither person missed out on a whole lot of growth by protecting assets and avoiding the possibility of losses.

One of the contracts is my new favorite from Midland National and the other is my old favorite from Great American.  Last year the old favorite edged the new and Great American locked a 5.3% yield compared to 4% for Midland.

This year, the owner of the Midland contract decided to allocate all funds to the S&P MARC 5 index, which is a blend of the S&P 500, Gold and US Treasuries.  Because rates dropped the fixed asset portion of the account increased in value and gave the index a nice bump.  This is the same index I wrote about a few weeks ago that ended up well into double digits for another person.  But last June the rally in this index started so the contract that started in July missed a few percentage points.  In the end, however, this contract just reset the year with an 8.5% yield.  Not bad at all.

We did something similar with the Great American contract but didn’t have blended index with treasury exposure.  So performance is limited to individual allocations of the S&P 500 and a Gold index.  The combination of the two produced a blended yield of roughly 3.8% and that’s just fine too.  There are plenty of people who have an asset that didn’t do this well.  What’s interesting is that within this contract there were opportunities to get that yield at high as 7% but hindsight is 20/20, right?  Maybe we’ll pick the perfect allocations this coming year.

Each contract owner has a surrender value that is well above the initial investment two years ago.  Each could pull 10% of the account value to spend or reallocate to any other investment, and even 20% if you work with someone who knows how to do it without paying a penalty.  Neither individual had to worry about losing money when the market went to hell, and both will lock these gains and never lose them in the future.  Both contracts have cap and participation rates that have not changed a bit so they each hold significant potential for double digits yields in the future and I have no doubt that each will get it eventually.

Over the past two years the S&P 500 is up about 13% total.  One of these contracts is up a total of 12.5% and the other 9.1%.  I’d say we are doing exactly what we set out to do.  In fact, every contract that has reset in this crazy year has returned a positive yield. It’s not always about the biggest yield rather consistency that makes it work.

Enjoy your weekend…

Bryan

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