Avoid Another Lost Decade in the Market by Using FIAs and IULs
If you want to learn more about Fixed Indexed Annuities (FIAs) or Indexed Universal Life (IUL) after reading this newsletter, I recommend you read my book RetiringWithout Risk. For the 1st time EVER I’m allowing advisors to download the book for FREE in a PDF ($25 print cost).
To download the book for FREE, click on the following link:
http://strategicmp.net/rwr-download
Let me start out by refreshing everyone’s recollection. From the high in March 1999 to the low in March 2009 the S&P generated a loss of 48%!
We are in a historic bull run. Good for us. But the last lost decade just recently happened. What happens if we get another one?
FIAs and IULs as an “asset class”
For years securities licensed advisors have shunned FIAs and IULs. It seemed to be a cultural thing where securities licensed advisors thought FIAs and IULs were for hack insurance agents. That is now changing and it should change.
For those who don’t know, the unique aspects of FIAs and IULs are:
1) No downside risk (in down markets polices credit zero at a minimum)
2) Gains are locked in annually
3) Gains are driven by a measuring index like the S&P 500 (without dividends)
4) Both have caps on growth (FIA’s caps are around 6% and IUL’s range from 10-15%)
How would an FIA and an IUL have done to protect clients from the lost decade?
Assume you started with $100,000 in an FIA with a 6% annual cap and $100,000 in the S&P (no manager fee). The ending account values if you started on 03/03/1999 and ended on 03/03/2009:
S&P500 = $52,842 FIA = $131,845
What about an IUL with a 12.5% cap vs. the S&P?
S&P500 = $52,842 IUL= $155,060*
But this isn’t fair? This is a manipulated illustration to make IULs and FIAs look good! Let’s look at 01/01/2008 to 01/01/2018 (a good run for the stock market). The following is the same FIA vs. S&P 500 example (FIA with 6% cap).
S&P500 = $192,916 FIA= $144,750
What about an IUL with a 12.5% cap vs. the S&P?
S&P500 = $192,916 IUL= $205,795*
FIAs and IULs as an asset class
I am not suggesting that FIAs or IULs are the end all be all tool when it comes to growing wealth for retirement.
What I’m suggesting is that as part of an overall financial plan, allocating money to an FIA and/or an IUL makes a lot of financial sense if the goal is truly to protect the client from large downturns in the stock market.
OnPointe RiskAnalyzer
After spending two years creating what is, hands down, the best investment risk assessment software in the industry, I’ve learned a lot about what is risky and what assets do a good job of hedging risk. FIAs and IULs, as you can see, do a great job of hedging risk while not sacrificing too much yield.
On Pointe is also unique in that it does the BEST job of incorporating FIAs into a financial plan to drive down risk (in January it will include IULs).
If you are using Riskalyze or Hidden Levers, it’s time to take a step up (with a lower cost). To learn about OnPointe, go to https://onpointeriskanalyzer.com.
*My example assumes the same starting point in cash in the IUL vs. the S&P 500. When you fund life insurance there are charges so that the initial account balance for growth is not 100% of the premium in year one. Many IULs will have as a first year account value around 93% of the first year premium. But also keep in mind that overtime there are no capital gains or dividend taxes levied upon the growth (and you can remove the money tax free at any time through loans). The point of the newsletter is to drive home the point that index insurance products can do a nice job of hedging risk while not suffering too much when it comes to growth (a good safe money tool for many clients).
