Money under the mattress or in a money market? What’s the difference?
We have all heard stories from our parents or grandparents about forgoing bank accounts and sticking money under the mattress during the economic nightmare that was the Great Depression.
Now, many people are facing another nightmare as retirement savings account values have plummeted over the past few years. To avoid the uncertainty of the markets, many investors are opting to park their money into short-term savings vehicles like treasuries, money-market funds or CDs––today’s equivalent of “under the mattress.” A whopping $42 billion was deposited into money-market funds in November 2011!
However, the barebones truth is that money invested in traditionally safe securities just doesn’t earn a lot now a days, which doesn’t bode well for those of us saving for retirement. With U.S. Treasury notes and money-market funds paying next to nothing and five-year certificates of deposits yielding a measly 2-percent, parking your long-term retirement money in short-term savings vehicles is almost the same as sticking the money under your mattress.
So, what’s an investor to do when you’re looking to earn some money on your principal…without risking your nest egg? Fixed Index Annuities may be an answer.
Fixed Indexed Annuities are insurance products that provide a balance of performance potential and principal protection.
The “Index” component of a Fixed Index Annuity means you can choose to allocate your money to one or more external market indexes like the S&P 500. This gives you the option to have your money earn credits based on the performance of these market indexes.
Fixed Index Annuities allow you to participate in stock market index gains …but not the losses. Every year that your portfolio registers a gain that gain will ‘lock in’ and become protected from future market conditions. What this means is this: if your Fixed Index Annuity earns you $1,000 during a year, you can’t lose that $1,000…regardless of how the stock market performs in the future. This can provide a nice growth component for your retirement portfolio.
It’s important to note that you don’t get ALL of the market upside with Fixed Index Annuities–just a percentage of the upside based on what’s outlined in your contract. Why don’t you get all of it? You ‘pay’ for safety. In exchange for protection of your principal, you give up a percentage of any upside.
With limits on how much upside you can enjoy if the markets go up, purchasing a Fixed Index Annuity certainly isn’t the ‘fast lane’ of investing. However, by offering principal protection for your hard-earned savings, they can go along way in putting to bed your fears about losing money in the market. They may be a good solution for investors seeking an opportunity to participate in growth based on the performance of the financial markets.
Give us a call if you’d like more information about getting your money out from under the mattress! For over thirty years Matt and I have helped empower thousands of individual investors––just like you–– to take control of their money and attain long term financial security.
Cathy DeWitt Dunn, President of DeWitt & Dunn, LLC, is the driving force behind Women Money & Power. With decades of experience in the financial services industry, Cathy specializes in helping individuals and families strengthen their retirement outlook with lifetime income solutions not available from traditional brokerage houses. She has helped countless investors start their personal journeys towards a stronger retirement with strategies designed to protect principal, generate retirement income that can’t be outlived, and eliminate market loss.