When investors are nervous about the future, annuities can provide protection and peace of mind.
Presidential election years are filled with charged rhetoric and spin. Political posturing often creates uncertainty as Americans contemplate what the country would look like if the other party won. Historically, markets have been volatile in presidential election years, moving lower before finishing higher, regardless of which party or candidate won.1
That doesn’t stop investors from worrying about the effect politics might have on their portfolios, though. Sometimes, reassurance that the stock market is efficient and apolitical is not enough to quell election-year fear. If protecting assets from what might be ahead is a serious concern, then commission-free annuities can help. Here are some options that can help when you want to:
- Protect current gains from election-year volatility. Many people have seen the value of their savings and investments grow during the recent bull market and some are concerned any gains will disappear if the market falls. One solution is to sweep gains out of the stock market and into a multi-year guaranteed annuity (MYGA). These fixed annuities can be attractive alternatives to short- and intermediate-term bonds and certificates of deposit (CDs) because they offer similar features, tax-deferred growth and, typically, higher interest rates.
- Eliminate stock market uncertainty. If you’re feeling risk averse but you don’t want to miss out on gains if stock markets move higher, consider allocating a portion of your portfolio to a commission-free fixed index annuity (FIA). FIAs give owners the opportunity to participate in the performance of a stock market index, without the risk of market losses. These tax-deferred annuities can help protect and grow assets.
Manage your level of risk and return. If you’re willing to take some risk, but you want an assurance that your assets won’t fall by too much should the stock market drop, then Registered Index-Linked Annuities, also known as RILAs or buffer annuities, may be a sound portfolio addition. Buffer annuities help investors limit the extent of losses due to poor market returns while still participating in market upside.
For example, if a RILA contract has a buffer of 10% over one year, and the stock index declines by 5% during that time, then the value of the contract would remain unchanged. If the stock index declines by 15%, then a 5% loss would be incurred. If the stock index moves higher, the owner sees the value of the annuity move higher. The protection on the downside creates a trade-off. Return potential when the market goes up is determined by the size of the downside buffer (some products offer protective buffers up to -40%) but can still offer double digit return opportunities.
- Ensure you’ll have enough cash flow if the stock market falls. Selling stocks when the market is down can turn paper losses into actual losses. Many types of non-qualified annuities have liquidity features that allow investors to make tax-efficient withdrawals. In addition to providing liquidity, these features can help investors extend the taxable gain portion of income payments over a longer time period, which can lower the tax owed.
Annuities offer powerful solutions for investors who are concerned about the impact of politics on their portfolios. If you have questions about whether an annuity is right for you, contact your financial advisor or reach out to a DPL Consultant at 1-877-625-5544. We can help.
1 CNBC Squawk Box. “Equities will likely bottom by mid-October, says Voya Investment’s Barbara Reinhard.” (2.30 to 3.30 min) February 23, 2024. CNBC. Cited March 13, 2024.