How would you like to play poker where the casino told you they would guarantee you that you will make money on every winning hand and, you would break even on every losing hand. You would line up for that table, wouldn’t you? That is precisely what we offer with Fixed Index Annuities.
Here is the truth about the so-called average returns in the market. We have seen them post average returns on their fact sheets- one year, three-years, five years, and lifetime. These numbers may be factually correct but are misleading. There is an enormous difference between average return and the actual return.
If you invested $100,000 and lost 50% in one year and then gained 50% in year two, do you know what they will tell you? Your average return was 0%. Was it? $100,000 minus 50% equals $50,000, plus 50% is $75,000. You experienced a 25% drop.
So, you decide now is the time to get out of the market, safety is the name of the game, from here on, no more sleepless nights. You see an ad, high yield CD offering 1.25% for a three-year commitment. You think not great, but at least I cannot lose any more money. Then it dawns on you that 1.25% interest is taxable. So, your 1.25% is now chopped down to only .94% after Uncle Sam takes his cut. Can it get any worse?
We can’t forget about inflation. Inflation has been averaging about 3.5% per year, so the purchasing power of $1.00 is reduced by 3.5% every year. What does this mean for our High Yield CD investment? 1.25% less 25% tax leaves .94% gain on our investment less 3.5% for inflation, your real rate of return is negative 2.5 %. Who says you can’t lose money with a CD?
Now what, what are you going to do with this information. This all looks too good to be true. We only participate in Market gain with unlimited upside and no chance of losing principal or losing previous year gains. We can defer paying taxes on the gains as long as we let it grow year after year. In most cases, no annual fees unless you choose guaranteed income for life.
