Fixed Index Annuity vs S&P 500

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Hi there, Stan The Annuity Man, America’s annuity agent, licensed in all 50 states

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and Puerto Rico. Today’s topic is a good one: fixed index annuity versus S&P 500.

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I’ve got to breathe. I’ve got to chill for a second because there are so much, as they say

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in Ireland— Big C behind the camera— there are so many shenanigans going on with the index

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annuity pitch that it is my duty to clear all this nonsense up. All these Johnny Appleseed agents out

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there selling the dream— I’m going to squash all of that and talk about the contractual reality.

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So, fixed index annuity versus S&P 500, after this.

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So, the go-go product right now is fixed indexed annuities. If you make a 70 on your

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state insurance license, you get to sell it and turn into master of the universe: market upside

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with no downside, principal protection with market participation. Garbagolio.

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I mean, if there was ever a product that has made my hair gray because of how people have

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been taken advantage of, it’s fixed index annuities. And we have nothing against them.

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I probably sell more index annuities than 99% of all agents on the planet.

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But we only sell them as a delivery system for income riders if you need income in the future.

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But the question of the day is fixed index annuity versus S&P 500.

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The typical sales pitch is, “You get this upfront bonus, Mr. Jones,

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and the index annuity is invested in”— which is wrong—“ invested in the S&P 500 index,

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and if it goes up, then we’re going to share in that gain.”

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Versus the S&P 500. The S&P 500 is the top 500 companies in the country,

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okay? You’re buying quality. You’re buying diversification. The S&P 500,

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over the last probably 50 or 60 years, averaged 7% to 9% if you

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were a buy-and-hold person. Might be more than that now because we’re in a raging bull market.

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But understand that with the S&P 500, like if you buy that mutual fund or if you buy the ETF,

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over 50% of the returns are dividends. I want you to just think about that for

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a second. 50% of the returns are dividend-based. That’s great, right?

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Let’s go to the index annuity side. The S&P 500 index that you purchase: zero dividends.

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Has nothing to do with dividends. It’s a snapshot of the price on the day you bought it.

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And typically, with most index annuities, that contract anniversary date

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is the same day that you can lock in gains. Those other 364 days, with most index annuities,

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you’re what I call an annuity eunuch. You can’t do anything. Did I get your attention?

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So, you’re slave to the day over here. You’re slave to the day. I had a guy call me the other

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day about his index annuity. I guess he thought it was up, and then he called me,

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“Why did I get a zero return?” I said, “Because that last two weeks was a bad two weeks.

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And that day that you locked in was a bad day.” You’re slave to the day. Good luck on the day.

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So, the question is: S&P 500 index in an index annuity, no dividends,

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one day per year you can lock it in. S&P 500 mutual fund:

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dividends, liquid, lock it in, take profits whenever you want.

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If you want real market growth, and this example didn’t just smack you in the forehead,

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real market growth doesn’t occur with annuities, with index annuities. Doesn’t

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make them bad. They’re CD products. They were put on the planet in 1995 to create

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CD returns. And guess what they’ve done since 1995? Historically, CD returns.

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Now, what happens over here a lot of times? They’ll have a teaser rate that first year,

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but if you read the specimen policy or the policy that you get after you bought it,

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after your exciting steak dinner seminar event,

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you can read in there that the annuity company can change the rules on the caps,

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spreads, and participation rates at their discretion without talking to you or the agent.

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We love indexed annuities for the delivery system of the income rider they provide. If you said,

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“Stan, I need…” You know, we ask two questions: What do you want the money

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to contractually do? When do you want those contractual guarantees to start?

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From those two answers, if you said, “We need income starting five years from now,”

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then we’re going to quote all income riders and deferred income annuities,

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but all income riders and the index annuities are the delivery system.

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We don’t look at the caps and the spreads and the participation rates and the S&P 500.

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We don’t look at that. We look at the income rider. That’s the guarantee. That’s all we care about.

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And if you go to my site, you can run income rider quotes. If you sign up for an index annuity quote,

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you get to talk to me. There’s no quote on an index annuity. You get

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to talk to me so I can walk you off the damn cliff. Excuse my French.

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But a lot of you out there go, “I’m going to get market upside with no downside.”

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Oh, really, Gordon Gekko? I don’t think so. Not going

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to happen like that. You’re not the smartest guy in the room.

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If you bought it for the income rider, great. But a lot of you are saying, “Well, they showed me the

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illustrations. I’m going to get 8, 10, 11, 12, 7, 6, 5. Sounds good to me.” That’s not guaranteed,

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player. Remember, you buy an annuity for what it will do, not what it might do.

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Let me go further here, though. What’s bothering me here on the index annuity pitch is now they’re

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saying, “Mr. Jones, this index has returned XYZ, and it’s fantastic,” and you’ve never

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heard of the index before. You know why? Because they made it up out of thin air.

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They did an algorithm for a return, and then they named it Unicorn. Sir, this Unicorn

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Index— I’m making that up, but they have some fancy name— this Unicorn Index has returned,

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and it’s only been… You know, if you’d owned it 10 years ago, you’d have made this.

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Well, it’s only been on the planet for three months. How can you run a 10-year

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back-tested number? That should be illegal. That’s misleading.

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If you said, “Stan, should I buy the S&P 500 index annuity or the S&P 500?” If I said,

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“Are you looking for market growth?” And you said, “Yes,” S&P 500, not the index annuity.

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If you said, “Well, I kind of want to protect the principal. I’m okay with some CD-rate returns.”

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Okay, buy the index annuity. But you’d be better off buying a MYGA, a multi-year guarantee annuity,

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fixed-rate annuity, the annuity industry version of a CD, because you get a better return.

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If you really want to know the down and dirty about index annuities,

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I wrote an owner’s manual on it. Go ahead and download that. You can go down the

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rabbit hole in my YouTube channel and type in “fixed index annuities.” You’ll see bunches

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of stuff. I’ve done videos on caps, spreads, and participation rates. I’ve done all that.

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But the bottom line is they’re not market growth products. They’re not securities.

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They’re fixed annuities. That’s okay. S&P 500— if you want market growth,

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go get it. Set it and forget it, as they say.

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One last thing. Watch this video. It’s important. I did one on artificial intelligence and how it’s

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going to affect the annuity business and primarily lifetime income. Give that a

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look because you need to know that’s happening. I’m the only one out here talking about this,

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and it’s not because I’m out there as some crazy man. No, this is coming.

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And I know that I’m on the right track by the hate mail that I’m getting from the industry.

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That means I’m on the right track. When they start saying, “Stan,

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you’re way off base. You have no clue what you’re talking about,” that means I’m on the right track.

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So, you’re going to start seeing articles about how AI is lengthening life expectancies. Those are

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being linked, those are being put in the media to set the stage to lengthen out life expectancies.

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Watch that video. Hey, see you next time.