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STOCK MARKET RETURNS WITHOUT MARKET RISK
By Matt Tuttle

After an amazing decade in the stock market returns came back down to earth in the year 2000. Many people believed that the market could only go in one direction, UP. 2000 proved them wrong. Now the financial prognosticators are talking about a slowing economy and a possible recession. If that happens it could be a further blow to a shaky stock market. In this environment if you sat down to design the perfect investment what features would it have? I did a little brainstorming and came up with the following list:

1. Stock market returns when the market is up
2. A minimum guaranteed return when the market is down---no downside risk.
3. No taxes on gains until you withdraw the money
4. The ability to produce a stream of income you cannot outlive.

Sound too good to be true? It's not, Equity Indexed Annuities (EIA) can provide these benefits and more.

An EIA earns interest or provides benefits that are linked to an stock market index, such as the S&P 500 (The S&P 500 is an index of 500 stocks that seeks to be a broad measure of the overall stock market). Interest is credited to your account based on the performance of the index over a specified time period. Most EIAs will also promise a minimum return, such as 3%, that is credited to your account regardless of market performance.

Over the last few years there has been a lot of press about the S&P 500 and mutual funds linked to it, and for good reason. The index and the stock market in general have experienced an unprecedented rise over the past decade. Funds that are tied to the index are among the most popular investments today. What many of these investors fail to realize is that what can go up can come down, meaning that their mutual funds have almost unlimited downside risk. EIAs give you the upside with none of the downside.

Let's look at an example: Assume that the EIA promises 75% of the stock market's return and a minimum return of 3% and you put in $100,000. In the first year if the S&P 500 is up 50% the value of your annuity will be $137,500, a 37.5% return (50%x 75%). If we instead assume that the market is down 50% in the first year your annuity will be worth $103,000 (the 3% minimum guarantee), a similar $100,000 investment in a indexed mutual fund would be worth $50,000. In a nutshell you get most of the market's upside with no downside.

Another added benefit is that since the money is invested in an annuity no taxes are due on gains until the money is withdrawn. . Because of the tax deferral and the long term nature of the investment an EIA is a superb way to supplement your IRA and company retirement plan for planning for retirement and reducing your current tax bill.

If you had to describe the perfect investment it would probably have unlimited upside, no downside, and no taxes due until withdrawal. An Equity Indexed Annuity is the only investment available today that has all of these characteristics.