Point to Point ZeroFloor Investing
NOTE: This Educational Tool is NOT related to any specific Insurance Carrier or Annuity/Life Product.
Intelligent Directions Insurance Solutions developed this proprietary Point to Point ZeroFloor CAP Educational Tool because of what we saw as an unmet need for investors to become more aware of the mechanics and amazing benefits of annuities when held for accumulation. Comparing a new annuity investment against the annually compounded S&P500 Index can become a confusing false comparison.Ā We felt the need to help eliminate some of that confusion…a confusion which is often based on a lack of investor self-awareness.
Key Question: Have your past investment results ever really matched the S&P500 Index compounded?Ā Considering management and administrative fees, dividends and annual taxation?
The Point to Point (P2P) ZeroFloor CAP Educational Tool and Calculator educates investors on the most common annuity crediting method found in many Fixed Index Annuities (FIA’s).Ā Available are the S&P500 historical annual year-end closing values (since it’s full inception in 1957), where users can experiment with how they actually performedĀ (hypothetical or real) versus the actual price valuation of the S&P500 Index on a compounded calendar year basis. Users are able to choose a market time frame, and layer in different hypothetical annuity parameters using S&P500 CAPS and Zero Floors.Ā The tool provides three comparisonsĀ in the calculated schedule; a hypothetical annuity valuation stream that the user selects, and both the actual S&P500 and an Honesty Adjusted S&P500 valuation streams for the same time period.
It is important to honestly assess your annualized stock market performances.
The “S&P500 Honesty Button” is the mechanism that allows you to consider your real market performance and net taxable returns if you had $100,000 invested in a Mutual Fund or a strategy that was supposed to mirror the S&P500 during the period chosen. Most advisors, managers, and individuals miss the mythical S&P500 performance by 2-4%+, and that probably doesn’t include a few “bad-misses” and tax consequences.Ā Even more important, a large percentage of Mutual Funds not designed to match the S&P500 (sold as “sector” funds, or possibly a more “conservative” strategy fund) miss the S&P500 by a lot more than 4%.
The two biggest takeaway lessons from this tool are;Ā 1) Understanding the powerful compounding value of the “ZeroFloor” (contractually never losing value), and 2) The potential cost of being complacent in thinking that you actually match or outperform the S&P500 Index…when you might not.Ā
This tool isolates the math and theory of annual Point to Point ZeroFloor compounding with a CAP, and it lets the user understand the mechanics and benefits better before analyzing any specific product illustration from an insurance carrier.
For people reaching retirement age, it is easy to still get lost in seeing the potential high value of compounding S&P500 price gains over a 30-50 year period.Ā This is especially true if you look at the recent bull market in stocks.Ā However, if you become enamored with those advertised stock market returns (which may not ever happen at a personal level going forward), you will overlook other positive options for your “safe-money”… which may have far less risk.Ā You can’t analyze yourself as an on-going business concern at or near retirement age. The real-world issues are that there is an endpoint to both a person’s retirement and their cash, and that bear markets are volatile land mines late in life.Ā Ā After using this educational tool, our clients are much better prepared to review and understand specific Insurance Carrier Annuity and IUL product illustrations, and the contract details built around S&P500 performance examples.
Sample ZeroFloor Compounding:Ā +5.50% + 0.00% + 5.50% > +26.0%Ā – 19.75% + 10.00%.Ā Surprised?? Ā
Be sure to read all of the pull-down explanations provided in this tool workspace. Make sure that you utilize the included “S&P Historical Lessons,” which is a click-friendly tour of many famous 20-year market periods. Try It!
This tool meant for educational purposes only.
