Annuity Truth - The 1st part of the statement is correct, but the 2nd part is false. Here are the details:
- This "Misunderstanding" is speaking about one of the ways in which a Fixed Index Annuity, or FIA, is able to capture & actually "lock in" interest if/when the stock market moves higher over a 12 month period. Then, if/when the stock market declines or crashes in subsequent years, the interest captured will not be lost.
- Let's be clear - comparing the stock market to an FIA is NOT an "apples-to-apples" comparison. An FIA will NEVER capture ALL of the stock market gains - it's an insurance product -it's a "risk transfer" product - and it's NOT an "investment."
- The FIA gives the owner the opportunity to earn an interest that's higher than what he/she could earn in a fixed rate CD, but without any risk of losing money if the market crashes.
- If you want all of the "stock market gains," you need to be willing to accept all of the "stock market losses," and the possibility of losing some of your money if the stock market declines.
- People who own FIAs decided that they didn't want any part of that - they decided they didn't want to risk losing any of their money by placing it in the stock market .
- Instead of getting an R.O.I. (Return On Investment) like stocks and mutual funds, Fixed Annuities earn interest - (remember when we were young and had our 1st savings accounts, and we earned the standard 5.25% "interest" on our "passbook savings account? " Once that interest was added to our accounts, it couldn't be lost - it was "locked in"...) - that same concept applies to Fixed Annuities.
- "R.O.I" (Return on Investment) is not the same as "Interest Credited" to your account
- Re: the 2nd part of the statement - it's 100% FALSE. Annuity companies DO NOT "keep the difference" - it's in the annuity companies' best interest for their clients' annuity contracts to perform well, since that will lead to additional clients for the annuity companies...
- Watch this short video - it does a great job explaining what the annuity carriers that issue annuities actually DO with the money they receive, and about the regulations they must deal with to maintain their designations as "legal reserve" insurance companies: https://www.safemoneyhouston.com/safe-money-contracts.html
- The bottom line is this - money placed into a Fixed Annuity contract is literally "insured & guaranteed" against any losses in the stock market, and money placed into the stock market is NOT "insured and guaranteed." Period.
- I'll be happy to visit with you and discuss, in detail, exactly how annuity carriers stay in business and are able to pay their employees, but "keeping stock market gains" from their clients' accounts is NOT the way their business models work.
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