Time is Money. Why Lose Either One?

When does -30 + 43 = 0?
When it involves placing your hard earned retirement dollars directly into the stock market. If you LOST 30% this year, it would take a 43% GAIN next year just to get you back to where you started!

Recent headlines have been unnerving, to put it mildly. High-profile banks (Wachovia), brokerages (Lehman), and insurers (AIG) have been acquired, gone bankrupt or sought government loans. On September 29, when the U.S. Congress first rejected the Emergency Economic Stabilization Act of 2008, the U.S. stock market lost more than 8% of its value, its biggest one-day decline in more than two decades.

It’s no secret that playing the market has its risks, and losing money is only half the story. Have you ever thought about the time it would take for you to make up those losses? Here’s how long it would take to rebuild your nest egg after a loss in the market. (See chart below.)

Safe havens have been scarce. With the exception of U.S. Treasury securities–which one of our programs, the Flexible Dollar Builder is primarily invested into–just about all market segments have struggled. Also, as a hedge against downside risk, a fixed indexed annuity from Allianz can further help protect your portfolio. If the market drops in a year, your annuity’s value will remain constant. Later, if the market return is positive, your annuity’s value will increase-even if the market doesn’t make up its previous losses.

For example, let’s consider a modest, conservative example. A fixed index annuity with annual reset from Allianz with $100,000 in initial premium. (1) Let’s assume that the first year the market had a 32% loss. Had you invested your premium in the market, your portfolio would then be worth just $68,000. But with your fixed index annuity, you are protected from decreases in the market, and your annuity’s value remains at $100,000. (2) Now assume that in the second year, the market “bounced back” with a full 12% return. If you were invested in the market, your market value would still be much less than your original investment.

But in an Allianz fixed index annuity with a 7.5% cap, your original $100,000 annuity value would grow to $107,500 – worth almost $26,000 more than your money would be in the market. This hypothetical example is provided for illustrative purpose only. With the potential for downside risk protection, your annuity’s value increases or stays the same and never has to regain costly losses. Just imagine the potential for growth without the threat of decreases. Again, diversification.

Although an individual stock like Lehman Brothers can lose all its value, it’s highly unlikely that the value of all publicly traded U.S. businesses would go to zero. But as it has recently, the stock market can fluctuate dramatically. This market risk is the trade-off for the stock market’s potential to produce higher returns over time than those produced by less volatile assets.

As they have in crises past—the junk-bond meltdown in the early 1990s, the collapse of the tech-stock bubble in 2000—the time-tested principles of diversification and balance, fortified by a long-term perspective (you need to have time on your side), will most likely prove a productive response to the market’s turmoil.

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