In the past, Allianz has been a company that I have gone to time and time again for income annuities. In particular, they have the strength for income annuities that have increasing income over the years.
Recently, Allianz caught my eye again for a different tool they have rolled out. This investment does not have any income benefits, rather it is used for growth only. What I like about the tool is that it has four investment options that can be mixed and matched depending on the level of risk and reward desired for the investor (examples to follow).
I have come to call these Indexed Linked Investments. They allow for generous participation when markets are good and a measure of loss protection when markets are bad. They do NOT have the onerous fees of typical variable annuities (2.5% – 3.5% per year). In fact, total costs are just 1.25% per year.
The first investment option is called PERFORMANCE. It allows for generous participation in market growth, Currently up to a maximum of 15% per year. In years when the market declines, the strategy will absorb the first 10% of losses. So if the stock market loses 10% for the year, the strategy would lose nothing. If the market loses 15%, the strategy would lose 5%.
The second investment option is called PRECISION. The way that this investment option works is as follows… As long as the stock market is NOT negative, this investment option will trigger a return for the investor , currently 9.4%. If the stock market is negative, this investment option will also absorb the first 10% of any losses. If the stock market loses 20% of its value for the year, as an example, this investment strategy would only lose 10%, since the first 10% of losses are absorbed.
Their third investment strategy is called GUARD. GUARD allows for a generous participation in market performance of up to 12.25% (as of the time of this writing). Losses for the GUARD strategy work a little bit differently. GUARD has a maximum loss of 10% in the year. This means that if the market loses 50% of its account value, the maximum amount that would be lost in this investment strategy is 10%. The investor participates in the losses of the market until the 10% loss threshold is maxed out.
The final investment strategy is called PROTECTION. This is the most conservative option. As long as the stock market is not negative, this will trigger a rate of growth for the investor of 3.7% (as of the time of this writing). In regard to loss, this investment is fully protected and cannot lose money. If the market loses 5%, the investor loses 0%, if the market loses 25%, the investor loses 0%,
Each year the investor gets to decide what percentage to put in each of the four investment options. They can choose 100% into one of them or divide them however they want among the four. This allows for a unique recipe of risk and reward depending on the investors appetite.
For example, a conservative investor who does not want to lose more than 5% in a single year could put 50% of their money into the GUARD strategy and 50% of their money into the PROTECTION strategy. With this mix, they can participate in up to a max of 8% and never lose more than 5% regardless of how bad markets get.
Another example… Putting 50% of investments in PERFORMANCE and 50% of investments in GUARD would allow for market participation of up to 13.63% in a single year and limit losses to half of the actual amount (50% loss results in 25% actual loss….10% loss results in 5% actual loss, etc).
There are endless variations and recipes to put together based upon the risk and reward you desire.
If you have questions about using Index Linked Investments, please contact me.