Photo: Bhoopi Kohli
Navigating a down market requires a delicate balance: safeguarding your hard-earned assets while still positioning for potential growth. One option has come to the forefront of the market: Fully liquid, no-surrender-charge Registered Index-Linked Annuities (RILAs). RILAs offer a compelling solution, providing a unique blend of market-linked growth potential and downside protection, all with the flexibility of accessing your funds when needed.
The Power of Index-Linked Growth with Downside Protection:
Like traditional RILAs, these innovative annuities link a portion of your returns to the performance of a chosen market index, such as the SP 500 or NASDAQ or Russell 2000. This offers the opportunity to participate in market gains, potentially outperforming fixed-income options during periods of recovery. Crucially, they also incorporate a level of downside protection through a buffer or floor, limiting the impact of market declines on your principal. This feature is particularly valuable in a volatile down cycle, providing a safety net for your assets.
Unlocking Liquidity: The No Surrender Charge Advantage:
What sets these specific RILAs apart is their full liquidity and absence of surrender charges. Traditional annuities often come with penalties for early withdrawals, potentially locking up your funds for a significant period. However, these liquid RILAs allow you to access your money without penalty, providing financial flexibility during uncertain times. This feature can be a significant advantage in a down cycle, offering peace of mind knowing your assets aren’t locked away if unexpected needs arise.
Strategic Benefits in a Down Market:
In a down cycle, allocating to a fully liquid, no-surrender-charge RILA can be a strategic move:
- Capital Preservation: The built-in downside protection helps shield your principal from significant market losses, offering a layer of security during turbulent times.
- Growth Potential: As markets eventually recover, the index-linked component allows you to participate in the upside, potentially recouping losses and growing your assets. You can use strategies such as step up or dual direction. In the dual direction strategy you have potential to make money both in up market and down market.
- Flexibility and Access: The absence of surrender charges ensures you maintain control over your funds. You can access your money if needed without incurring penalties, offering crucial financial flexibility during an economic downturn.
- Tax Deferral: Like other annuities, these RILAs offer tax-deferred growth, meaning you won’t pay taxes on earnings until withdrawal, potentially allowing your assets to grow more efficiently over time.
While offering significant advantages, it’s important to understand the specifics of the RILA, including the crediting method, buffer or floor level, and any associated fees. Consulting with a financial advisor, preferably a CFP and Independent Registered Investment Advisor, is crucial to determine if this type of annuity aligns with your individual financial goals and risk tolerance.
Fully liquid, no-surrender-charge RILAs present a compelling strategy for navigating a down market. They offer the potential for market-linked growth while providing crucial downside protection, all without sacrificing liquidity. This combination of growth potential, security, and accessibility can be a valuable tool for investors seeking to both protect and grow their assets during uncertain economic times.
Bhoopi Kohli is a Certified Financial Planner (CFP) and Chartered Financial Consultant (ChFC). He is Founder and CEO of KFICO Group of Companies. He can be reached at bhoopi@kfico.com.