Buffered Index Investments

Participate in the Upside of Market Indexes while limiting losses

Every investor’s dream is to participate in the upside of market indexes, while limiting or eliminating losses. What if there was a way to invest in the most visible market index in the world with virtually no caps (or very high ones) yet at the same time avoid market downturns?

You might think we’re talking about a fixed index annuity, but we are not.

Unfortunately, most fixed index annuities come with severe caps in exchange for eliminating 100% of all losses. But because the market indexes rarely fall more than 30%—and when they do they don’t stay there—a protective buffer of 30% with virtually no cap can deliver very strong risk adjusted returns. By protecting you to the level of 30% rather than 100%, your upside potential can be much greater.

Market timing is difficult if not impossible in the long run. In study after study, reducing or eliminating losses, even if upside gains are muted somewhat, can result in superior returns over the long run—and fewer sleepless nights.

Beating the Averages

According to a recent DALBAR study, the average equity investor underperformed the S&P 500 by 5.5% in 2023. Over the past 30 years, the average investor has underperformed the index by nearly 3% annually. In short, investors can’t seem to get out of their own way, but if you can remove the fear triggers from the equation, investors are likely to come out better in the end.

Enter “buffered risk portfolios.” It works just like it sounds. Rather than exposing yourself to 100 percent of the downside risk, or fussing with temporary stop losses, you can now choose to place a part of your portfolio into accounts that offer serious upside potential—virtually no cap—while enjoying 30% buffer to the downside.

It works Like this

If the index is up, you are moving up dollar for dollar. If that eventual correction comes, you have protection. With a 30% buffer for example, the market can decline by 30%, and you are not down at all. If it declines 31%, you are down only 1%. As soon as the market index recovers back to the 30% protection level, you are no longer “down.”

If the index falls 37%—which is the percent decline that occurred in 2008—you would be temporarily down 7%.

Advanced and Revolutionary

This is quite an advanced and revolutionary way to invest. By minimizing downside risk, generating superior risk-adjusted returns, avoiding severe drawdowns and, removing the temptation of frantic buying and selling, you become a much more patient and disciplined investor. Patience and discipline are two of the most powerful tools for winning with investments over the long run.

In 2000, Amazon was a laughing stock, literally. But $10,000 placed into Amazon in 2000 is now worth over $1.2 million. After the initial assessment, all it took was patience and discipline to reap the rewards.

Buffer ETFs and buffered variable annuities work in a similar way. The objective is to capture market returns when indexes are moving higher, but protect yourself from drawdown risk when they aren’t. The result can be that you reduce overall volatility and mitigate extreme drawdowns in your portfolio.

Buffer ETFs are fine in IRA portfolios, but if you are investing non-IRA funds, there are now variable annuities with no surrender charges and very low fees—as little as one percent annually. The benefit is that your money can grow tax deferred for years to come. You can withdraw from the annuity when you wish.

Summary

In summary, if you have reached the point where you can see a market rising from here on, but are concerned about sudden reversals, why not sign up for protection along with your upside growth potential? Liquidity is ample if you wish to change horses, but many are finding it comfortable to ride waves without the fear of getting washed out to see.

Let us know if you would like to explore further and see examples of historical returns.

More Details About Buffered Index Investments

Buffered Index Investments use structured notes to provide investors with downside protection along with upside participation. Your buffered index investment will invest in a series of structured notes that offer a predetermined set of terms. These terms include the cap and the buffer. These terms allow you to participate in market growth with a predetermined level of downside protection.

The Cap

The cap sets the level of maximum upside participation. This can typically range from 10% to 25%, or even Uncapped, depending on the options you choose. Cap rates can vary based on terms provided as well as market factors—such as volatility of the index used and current interest rates.

The Buffer

The buffer is the predetermined level of downside protection. You might call it your “stop loss.” This protective level typically ranges from 10% to 30%. Briefly, it works like this: If the index is down 28%, but you have a 30% buffer, you lose nothing. But if the index is down 31%, you are only down 1%. As the index comes back you re-enter the “Buffer Zone”. Generally, shorter time frames have lower caps, longer time frames have virtually no cap. The Buffer allows you invest in the growth of the index with protection to the downside.

The Downside Protection

Our buffered index investments are issued and backed by some of the largest financial institutions in the world. Not only is your money protected by the buffer, the buffer is backed by an A+ institution.

The Upside Growth

The upside growth potential is linked to the participation rate. This determines how much your investment will participate in the growth of the index. Your participation rate can be as high as 100% or more in some cases. Our investment team will solicit multiple bids from investment grade underwriters that offer the maximum level of upside participation (or the cap), based on these pre-defined terms.

Important

It is possible to lose money in a structured note. The note does protect against a certain level of loss (the buffer), but can participate below the predetermined buffer level.

Liquidity and Intra-period Returns

Important considerations for the buffered index investment are liquidity and intra-period returns. Because buffered index investments are designed as a point-to-point solution, we encourage investors to remain invested to the maturity date to achieve the predetermined outcomes. However, structured notes are priced daily at a net asset value (or NAV), and can be redeemed interperiod if necessary.

Remember

Intra-Period Liquidations may not directly correlate with the return of the index and are subject to a 25 basis point (or 0.25%) reduction to net asset value on the liquidation date.

What Happens at Maturity?

If assets are held to maturity, the note will liquidate and proceeds will go to cash. Once the note is liquidated, investors can then choose to use proceeds for the next structured note offering. Just remember that proceeds from matured notes will not be automatically reinvested in the next offering as terms and market conditions are subject to change.

Summary

Buffered Index Investments use structured notes to provide investors with a pre-determined buffer of downside protection along with upside participation to a maximum cap rate. This structure will allow investors to take advantage of market growth, but also provide some protection from market downturns. Our team will define the terms and solicit multiple bids to select attractive cap rates that are backed by investment grade financial institutions. These notes are meant to be point-to-point solutions, but do offer daily pricing and liquidity if necessary.

Important Disclosure:

This product is not a fixed index annuity, but rather a variable annuity investment in the stock market. A stop loss can be selected at the level of your choice, i.e. 10%, 20%, or 30%.The higher the protection level the more conservative your returns may be. This offering is for accumulation only. There are no income riders available. Annuities are long-term investment products that offer tax-deferred growth, access to a lifetime income stream, and death benefit protection. To decide if either of these products are right for you, consider that its value will fluctuate; it is subject to investment risk and possible loss of principal; and there are costs associated with the variable investment options such as product charges. You may “dial up” the level of protection you prefer. All guarantees, including those for optional features, and all amounts invested into the indexed accounts are subject to the claims paying ability of the issuer. Limitations and conditions apply. Any distribution or transfer from an indexed account (other than on the term end date) is based on the interim value of each indexed segment. The risk of loss occurs each time you move into a new indexed account. If the negative return is in excess of the protection level selected, there is a risk of loss of principal. For example, with a 30% protection level, a 31% index decline would put your account down by one percent. That is how the buffer works. Protection levels that vary based on the index, term, and crediting strategy selected are subject to change and may not be available with every option. Once locked in, they are good for the term length you select. Please see the prospectus for details. Call 888-310-1776 for a copy of the prospectus and more information. Investors are advised to consider the investment objectives, risks, and charges and expenses of the annuity and its underlying investment options carefully before investing . The applicable prospectuses for the variable annuity and its underlying investment options contain this and other important information.