Understanding an Indexed Strategy
*This graph is based on actual credited rates for the period shown on the Index-5 product from American Equity which has since been replaced
What exactly is an Indexing Strategy in an insurance environment?
This kind of strategy has two key components: a CAP or limit as to how much you can earn when the market is good and a protective floor of ZERO when the market is not good. How is this different from the S&P 500 Index mutual fund? The S&P 500 mutual fund spreads the investments evenly between 500 different stock companies. There's no cap on gains, so you keep what it returns when the market is good, but when the market cycles down, you suffer the losses because there is no floor.
The chart below is based on ACTUAL CREDITED RATES for the period 1998-2014. It shows how $100,000 would have performed during this period had it been invested in the S&P 500 mutual fund and an Indexed Annuity using our Indexed Strategy.
With the Insurance Indexing Strategy, our client is protected in the years when the market loses money due to a fixed zero floor. Preventing loss is one of the main components of our Indexing Strategy.