Enter Nationwide. Nationwide has now ventured into the fixed indexed annuity world. Nationwide is introducing a pretty new concept. They have come out with a very attractive annuity with no caps.
Let’s look at Nationwide’s New Heights Indexed Annuity. The New Heights annuity allows you to designate up to 70% of premium dollars to a uncapped S&P 500 bi annual account. The rest of your money or the 30% will earn a flat fixed rate which is currently 1% fixed.
To give you an example in the year 2013 the S&P 500 increased 29.60%. In the year 2012 it increased 13.41%. By contrast in 2008 the market lost nearly 40% in one year.
Wouldn’t it be great if you could only erase the bad years and get uncapped gains in the good years? Now you can.
It works out like this if your put in $100,000 the uncapped $70,000 would earn whatever the S&P 500 made minus a small spread. That’s pretty fair, considering there is no risk to your principal.In 2013 and 2012 you would have earned 29.60% and 13.41% added together and locked in at the end of the second year.
The reason there is no risk to your money is you are not directly invested in the markets. The annuity simply credits your account a declared rate based on the performance of the S&P 500. In the bad years you will simply make nothing on 70% of your money and earn 1% on 30% of your money. You can choose other allocations this is simply for you to understand.
As clearly shown 2012 and 2013 were great years in the S&P 500. In spite of this investors are keeping a lower percentage of their money in the market than ever. Now you can be in the market and out of it at the same time for all intensive purposes. That would have been a great time to be in this product. Now, obviously timing plays a role here but we know the markets will have great years and not so great years.
It’s true that had you just invested the money in the market yourself over that same time the $100,000 would have grown to over $143,000 but what about the next recession that will eventually come? In the great recession of 2008 the S&P 500 dipped 38.49%. I say it’s better to earn a little in bad years rather than losing you shirt. That’s the idea behind 30% of your premium dollars being in a fixed account.
The stock market has indeed come roaring back. It did the same thing back in the 1920’s right before the worst crash ever on October 29, 1929. Nobody knows when the next crash will be but it’s foolish not to prepare.
A word of caution: before take your hard earned money and invest it anywhere talk to a professional and read the materials provided by the company. No annuity or investment is right for everyone. This in our opinion is a great option though.