Someone described the stock market as “legalized gambling” and anyone making investments the last 10 years would be hard pressed to argue.
It doesn’t matter where you put your money – stocks, bonds or mutual funds – the ride has been dizzying the last decade. There were so many steep climbs and terrifying plunges, you’d think Wall Street was home to a theme park.
It’s been a thrilling run if you like gambling, but if you prefer a little safer ride down retirement lane, it might be time to slow down, open the door and let annuities have a seat next to your stocks, bonds and mutual funds.
Annuities are dependable, predictable, rational choices in the turbulent investment world. Their gains won’t match the soaring returns on stocks or mutual funds, but they also won’t dive off a cliff like those other two did during the Great Recession.
In gambling terms, annuities would be known as a “safe bet.”
They are tax-deferred investments that give you a chance to turn a lump sum of money into a steady stream of income, either immediately or years from now. Most annuities are designed to last as long as you do, but there are some types of annuities that pay investors in shorter increments from five to 30 years.
There are a variety of choices – immediate, variable and index annuities are the three most popular – and they all come with an a la carte menu that you tailor to meet you specific needs. Things like guaranteed life-time income, death benefits for your heirs, liquidity options and inflation-adjusted payouts are some of the things you can ask for as part of the agreement when you buy the annuity.
Gambling with the Stock Market
So what is the best way to slip annuities into your portfolio and make sure there is a positive impact? Start by deciding how much gambling you still want to do with the stock market.
The Dow Jones industrial average, between 2007 and 2009, lost 7,657 points. That put fear in people’s wallets. Even though the market recovered all of its losses the last four years, the memories of the downward fiscal spiral are fresh enough that their strategy is more about loss-avoidance than building a bigger portfolio.
People are not too keen about rolling the dice again.
At the other end of the table are the people whose relentless optimism is the reason the Dow, Standard & Poor’s 500 index and Nasdaq have sailed under clear skies all year. They pour their money like it’s water into the stock market, and this year especially, it’s turned to wine.
The Dow, S&P 500 and Nasdaq all recovered to record level, meaning that if you invested in stocks or mutual funds, you’ve done very well the last four years. If you’ve been riding that hot streak, the Great Recession and the losses you suffered are a distant memory.
Compiling a Varied Investment Portfolio
Annuities are the safe spot in between the recession and recovery.
A good investment portfolio should include as many available options as the investor can tolerate. That means dedicating a certain percentage of your funds to stocks and mutual funds, another percentage toward bonds, and the last portion of the pie to annuities.
Because of the unpredictability of stocks, bonds and mutual funds, there is no sure-fire strategy to make your investment savings last as long as you do, but the best suggestion from experts is putting half of your money into lifetime immediate annuities and split the other half between stocks and bonds
That should make for a safe, if unspectacular, ride through retirement. Just remember: Though annuities can act as a safe haven for your money, they can’t protect you from every investment risk out there.