Investing In the Stock Market – The Alternatives

Why put yourself in a position where you’re affected by the roller coaster of market volatility? By Christopher Music

With all of the volatility of the stock market, have you ever wondered what alternatives are there to the stock marketplace?

1 alternative to investing within the stock market, particularly during times of exceptional volatility is in a Fixed Index Annuity (FIA), a hybrid between a fixed and variable annuity, for long-term growth.

What’s an annuity?

An annuity is an insurance product provided via insurance companies that grows tax-deferred over time and can provide a lifetime income during retirement.

The benefit of a fixed index annuity is the fact that they are fixed annuities, which indicates that the principal is guaranteed and there is a guaranteed minimal rate of return on these kinds of accounts.

The -index- component comes in simply because annual returns are based in component on the price improve of a stock index (excluding dividends), such as the S&P 500. When the marketplace goes up, a portion from the gains on an annual basis, up to a -cap–say 5 to 10%, are locked in and credited towards the account as interest. When the market goes down, no losses are posted in the account.

The reason these annuities make sense for retirement planning is the fact that the account balances can never go backward. This indicates the market can move up, down or sideways and just gains are credited. Furthermore, some of these annuity contracts have riders that can create guaranteed income for life.

The investing landscape has changed.

This last credit crisis has confirmed some intriguing information: ?1st In order for an investor to accurately assess risk, he must know all relevant material facts regarding an investment. This is impossible when there is wide systemic misinformation or undisclosed information, resulting in a gross mispricing of risk. An illustration of this this is the mis-rating of mortgage-backed securities from Moody’s and Standard & Poors.

?2nd The economic experts of our government and corporate institutions were surprised this crisis happened. If they can’t predict future economic phenomena based on mountains of data and insight at their disposal, how can an average investor have any idea what to do? The truth is that it’s impossible to know all from the correct data necessary to successfully navigate the world-wide investment markets over the long term, not to mention the long term outcomes of arbitrary government fiscal and monetary policy.

?3rd The costs of investing within the market through mutual funds, typically the most popular form of investing, are very high. When all costs are included like portfolio management and trading costs to name a few, the costs can easily exceed 3% in actively traded funds.

?4th As outlined by Dalbar (, the typical stock market investor made the average return of 1.87% from 1988-2008, while the S&P 500 averaged 8.35%. Why? Because amateur investors love to sell when the marketplace is down and buy more in periods of market bubbles. Empirical evidence has proven that people react irrationally under threat of loss and can actually sell out at the bottom of a market in order to -prevent further losses-.

How long will it take to make up a loss?

If an investment account lost 40%, then just how much percentage return would it take to get back to even? 40%? Nope. 66%.

The percentage returns are based on small numbers therefore it takes more return (and therefore more risk) to get back to even.

A few of these improvements within the insurance industry offer persuasive options for the average investor. Insurance companies do 1 thing very well-manage risk.

Today there’s more risk in the investment markets than previously because of propaganda, authoritative opinion, and downright fraud.

Why put yourself at risk?

Why put yourself in a position exactly where you are impacted by the roller coaster of marketplace volatility? How important is peace of mind knowing that your account wouldn’t lose 1 penny once the stock marketplace loses half of its value? Booms and busts are part from the investment game but I would imagine that the average investor has enough to bother with instead of fretting over losses in his nest egg.

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