With financial markets around the world in total shambles, many investors are looking to the security of principle-protected investments – US Treasuries being the paradigm. Yields on long-term Treasury bonds have fallen to historical lows, hovering just around 3% as investors flock to the safety and stability of the “full faith and credit” of the US taxpayer. Yet with a yield that more or less mimics the average inflation rate of the past 10 years, how is anyone planning on retiring or sending a child to college supposed to build wealth with such tiny yields?
One of the greatest annuity sell points is that, while in many ways an annuity acts like a bond, it also acts like an equity inasmuch as principle can grow when the market goes up. Depending on the annuity, the buyer will pay a small premium to protect principal – usually in the form of options bought by the annuity’s administrator – so that he or she can capitalize on appreciation when underlying investments like equity or bond index funds rally out of a bear market. Now more than ever, variable annuities hold tremendous appeal because they protect to the downside while also promising significant upside in the likely event the market corrects over the next 5-7 years.
Financial planners’ customers realize more than ever the importance of capital preservation. Only through the preservation of principle can wealth really grow, and only with a secure income can anyone ever feel confident about their financial future. By providing consistent cash flow, much of which can be used to augment the annuity’s principle, annuities hold the promise of growing nest eggs for those who don’t have the stomach for stock market volatility; and a consistent cash flow is also an appealing proposition in the nearer term, where deflationary pressures are making each future dollar look more and more valuable.
Competent retirement planners owe it to their customers to walk their customers through all the annuity sell points. Whether it’s a fixed rate, variable, or leveraged product, anyone serious about building wealth for clients should provide these valuable investment options. And with more and more people re-thinking their wealth-building strategies, there is real value in an advisor who can promise lower volatility without getting into any trouble.
Annuities are in high demand now and the demand for them will undoubtedly continue to grow as investors embark on the proverbial ‘flight to safety.’ By offering a selection to their clients now, financial planners can be sure to catch this big market move.
