annuities to protect market gains

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golddigger
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Joined: Fri Aug 31, 2018 7:07 pm

annuities to protect market gains

Post by golddigger »

I would like to to protect stock market gains made in the last ten years. Would selling lets say 10% and investing it in a variable annuity with income guaranties make sense ? The earnings are outside retirement accounts and I would not need to tap the annuity payments for at least 5 years. My tax rate is lower now than it will be in 5 years. The annuity with guaranties costs about 1.6%
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arcticpineapplecorp.
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Joined: Tue Mar 06, 2012 9:22 pm

Re: annuities to protect market gains

Post by arcticpineapplecorp. »

need to post your whole portfolio to know for sure, otherwise it's garbage in garbage out:

viewtopic.php?t=6212

generally you should have an IPS to stay the course rather than look at market timing (protecting gains). You're afraid you're going to lose money if the market falls, but you could also lose money if you sell 10% and the market rises after. Also, if you're worried about your portfolio what would happen to the 90% that you are leaving in the market (i.e., you're not "protecting" market gains on 90% of your portfolio).

You should determine your need, ability and willingness to take risk and design your portfolio accordingly (whether that includes variable annuities to accomplish that is yet to be determined):
https://www.cbsnews.com/news/asset-allo ... -you-take/

https://www.cbsnews.com/news/asset-allo ... tolerance/

https://www.cbsnews.com/news/asset-allo ... -you-need/

https://www.cbsnews.com/news/asset-allo ... ing-goals/

see my signature below regarding setting up an IPS.

welcome to the group

also look at this article by Larry Swedroe "Better to Face the Correction":
https://www.etf.com/sections/index-inve ... nopaging=1
In a September 1995 interview with Worth magazine, [Peter] Lynch put it this way: “Far more money has been lost by investors in preparing for corrections, or anticipating corrections, than has been lost in the corrections themselves.”
It's "Stay" the course, not Stray the Course. Buy and Hold works. You should really try it sometime. Get a plan: www.bogleheads.org/wiki/Investment_policy_statement
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Stinky
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Re: annuities to protect market gains

Post by Stinky »

golddigger wrote: Mon Apr 05, 2021 10:58 am I would like to to protect stock market gains made in the last ten years. Would selling lets say 10% and investing it in a variable annuity with income guaranties make sense ? The earnings are outside retirement accounts and I would not need to tap the annuity payments for at least 5 years. My tax rate is lower now than it will be in 5 years. The annuity with guaranties costs about 1.6%
If you truly want to “protect” stock market gains, you could sell equities, pay the capital gains tax, and put the net proceeds in fixed income of some type. As a Boglehead, I wouldn’t advise that, but that’s a choice you could make.

The only type of annuity to consider in a situation like this would be a multi year guaranteed annuity (MYGA). It’s also referred to as a “CD annuity”. Post back if you want details or more information.

A variable annuity will not “protect” your gains. It will just cost you 1.6% per year. You’ll be the poorer for it if you purchase a VA.

Don’t buy a variable annuity.
It's a GREAT day to be alive! - Travis Tritt
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HueyLD
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Re: annuities to protect market gains

Post by HueyLD »

+1 to Stinky’s comments.
MittensMoney
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Re: annuities to protect market gains

Post by MittensMoney »

General advice is to avoid mixing investments & insurance. Annuities are a "guarantee" and you pay a large premium for that guarantee. If you can't sleep at night without a guarantee, pay the extra fees and do it, but for most people it doesn't make sense to spend extra money on something like that. What exactly do you think these insurance companies do with those annuity premiums? They plug it into the market in the same way you would, and keep the difference.
DarkHelmetII
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Re: annuities to protect market gains

Post by DarkHelmetII »

golddigger wrote: Mon Apr 05, 2021 10:58 am I would like to to protect stock market gains made in the last ten years. Would selling lets say 10% and investing it in a variable annuity with income guaranties make sense ? The earnings are outside retirement accounts and I would not need to tap the annuity payments for at least 5 years. My tax rate is lower now than it will be in 5 years. The annuity with guaranties costs about 1.6%
Dial back equity allocation and / or put a portion of your portfolio into Permanent Portfolio. By and large variable annuities are a bad deal for several reasons.

Also, even 'authoritative' sources like AM Best opine in complexities, morphing if annuities from what they originally were.

Annuity Advocates: The Industry 'Lost Track' of What Annuities
Are
https://www.ambest.com/video/MediaArchi ... 3974802001
Last edited by DarkHelmetII on Mon Apr 05, 2021 3:54 pm, edited 1 time in total.
Tingting1013
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Re: annuities to protect market gains

Post by Tingting1013 »

MittensMoney wrote: Mon Apr 05, 2021 11:52 am General advice is to avoid mixing investments & insurance. Annuities are a "guarantee" and you pay a large premium for that guarantee. If you can't sleep at night without a guarantee, pay the extra fees and do it, but for most people it doesn't make sense to spend extra money on something like that. What exactly do you think these insurance companies do with those annuity premiums? They plug it into the market in the same way you would, and keep the difference.
...and they redistribute the money from those who are unfortunate enough to die early to others.

Not something you can do on your own.
Topic Author
golddigger
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Re: annuities to protect market gains

Post by golddigger »

Thanks for the info. Never tried to time the market, but as you get older, things start to look different. Perhaps changing my stock to bond ratio would be best.
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Stinky
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Re: annuities to protect market gains

Post by Stinky »

golddigger wrote: Wed Apr 07, 2021 8:40 pm as you get older, things start to look different. Perhaps changing my stock to bond ratio would be best.
Yes. You can certainly decrease equities and increase fixed income to become more conservative.

But, as stated upthread, I would not buy a variable annuity as part of that process.
It's a GREAT day to be alive! - Travis Tritt
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Taylor Larimore
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Re: annuities to protect market gains

Post by Taylor Larimore »

golddigger wrote: Wed Apr 07, 2021 8:40 pm Thanks for the info. Never tried to time the market, but as you get older, things start to look different. Perhaps changing my stock to bond ratio would be best.
golddigger:

Yes.

Best wishes
Taylor
Jack Bogle's Words of Wisdom: "As a crude starting point, an investor's bond position should equal his or her age."
"Simplicity is the master key to financial success." -- Jack Bogle
jimkinny
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Re: annuities to protect market gains

Post by jimkinny »

I don't think I would consider a variable annuity but would consider an immediate annuity aka single premium immediate annuity depending upon your age. There are a lot of threads about variable annuities, I know very little other than those who seem to know on this forum take a very dim view of them. There are a lot of threads on immediate annuities also. They are an insurance product that can be used in place of or in addition to bonds to generate an income stream that lasts a lifetime albeit not inflation adjusted.
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