By Carl Delfeld of Chartwell ETF
With our core and explore strategy, one point I stress is that your core portfolio needs to be strong and your explore portfolio needs to be flexible and trading oriented.
And members of Chartwell ETF know of my frequent advice that investing is playing the probabilities. If you think that there is a 50/50 chance that markets will be lower in a year or two, why is your ETF portfolio 80% long in markets? It makes no sense at all and puts your financial future at risk.
Investors need to divide their nest egg into buckets and the bucket that has to weather this market and financial storm may find its best home in an indexed annuity.
There are much better indexed annuities on the market than even just a few years ago. Nice guaranteed returns, flexibility in index choices, ample liquidity and lower fees. This may be a great way to position your core portfolio and still participate in the upside when markets recover. Just because we are going into a recession, doesn't mean your money has to be in one.
But the most important step is to select a strong insurance company. The insurance company backing the annuity that I think is the best on the market is the oldest insurance (and 5th largest) company in the world (it insured Winston Churchill) and is the #1 provider of indexed annuities in the US.
Briefly, here is an illustration demonstrating how the ETF annuity works.
If an investor puts $800,000 in this annuity, they would receive a 10% bonus right up front or an additional $80,000 for a total initial balance of $880,000.
On this $880,000, you would get a guaranteed annual growth rate in your account of 8% out as far as 20 years and over a bit more than nine years, the account balance would double to $1,760,000 if you did not take any money out.
But there is another perhaps better possibility. Your initial balance will also track an ETF like the S&P 500 or Nasdaq and your account balance will grow by capturing some, but not all, of the index's gains. Another neat option is pick a blend of ETFs to track such as the Dow (DIA), the S&P 500 (SPY) and Nasdaq (QQQQ).
Here is a another nice feature. Each year, your indexed gains are locked in so you can’t go backwards if markets decline the following year. Your worst-case scenario for this indexed side of the annuity account is zero growth. I am sure many investors would jump at that in hindsight.
In short, you get a nice guaranteed rate plus the chance to capture some of the upside if markets recover.
I think of this ETF annuity as investing in the markets but with a safety net underneath - just in case. An indexed annuity is not for everyone and you should not put all of your nest egg in one but I see a strong case for one as part of your investment strategy. Its not perfect but for the right situation, pretty darn close.
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