In "normal" stock market investing, the range of outcomes is unlimited in terms of gains and losses. For those who would rather reduce the volatility and eliminate or reduce stock market risk, there are a number of types of structured products that create a predetermined set of outcomes. For our purposes here, we will focus on the structured outcome contracts within a fixed index-linked annuity (FIA).
When using an FIA, one's investment is linked to a stock market index. Gains are credited at the end of a term if the price of that index increases. One's funds are not actually invested into the stock market itself. Under most choices, if the price index goes up, your account is credited with 100% of the gain, usually up to a maximum "cap." That new value becomes principle and can't be lost in subsequent years. Future gains compound on any previous gains. Conversely, if the stock market price index declines -5% or -25% or more in a contract year, your account won't lose. In exchange for the downside protection, most contracts have a "cap" or maximum gain. Currently,* the highest caps for FIA contracts linked to the S&P 500 price index are in the 13%/year range^ depending on amount deposited, the company, the index, and term selected. Contracts linked to the world index, MXEA, have potential gains up to 14%. Other index-linked contracts have no cap. A similar investment called a "RILA," (registered index-linked annuity), offers contracts with a potential for greater gain (15% - 25%/year or more) in exchange for taking on risks beyond a 10% or 20% decline.**
FIAs allow investors to profit when major stock market indexes rise while providing full protection from downside losses. Each contract within the account is typically 1 year and multiple allocations to different indexes may be made in the same account to create some diversification. These contracts are typically issued by some of the largest financial institutions in the country.
Basic FIAs have no upfront charges and have no yearly fee. In my practice, most all the contracts issued are fully liquid with no early withdrawal penalties.^ There are certain suitability guidelines that must be met. Not all investors are candidates for an FIA. Please read all product materials and the prospectus if applicable.
Below is an easy to understand analysis of S&P 500 price returns since 1928. Please read to understand the power of today's structured outcome FIAs and RILAs. These are "not your daddy's annuities," that tie up your money with high internal fees. These are investments that may, over certain market cycles, beat the indexes due to their ability to eliminate or reduce losses in down years.
*As of 11.05.2025;
^Terms describe Mass Mutual Ascend's IP-5 contract. For normal withdrawals greater than 10% of the account value during the first 5 years of the account, there may be a postive or negative "market value adjustment" depending on interest rate fluctuations. See policy disclosures for details.
**Terms describe Amplify 2.0 issued by Athene Life and Annuity
Since an FIA credits gains when the price of the chosen stock market index increases in value during the contract year, it makes sense to wonder how often the most used index, the S&P 500*^, goes up during 1 year periods. Since 1928, the price index has increased in 68 of 98 years (about 69%). Returns of 11% or better have occurred in 49 of those years (50%) and 7.06% or better in 9 of those years. So, in 59% of the years, the index has increased 7.06% or better.*
Using rolling 7 year periods, of which there now have been 91, the index has experienced the following:
While one can't make predictions of future returns or crediting rates, if the next 7 years were "average," an FIA with a point to point crediting method and an 13% yearly cap, would return 13% in 3 or 4 of the years and 7% or better in 1 or 2 of the years. In 2 or 3 of the years, the price index would be negative and your funds and any gains would be safe and secure. If, in 3 of the years the price indexed gained 13% or better, and 1 of the years the gain was 7%, the compounded 7 year total return would be about 54%. Of course, there are no certainties this would occur and this is just for illustration purposes only. Your results may be better or worse and in no circumstances would you incur stock market losses.
*Source for all data: https://www.slickcharts.com/sp500/returns/details
*Data analysis as of 10.25.2025
*^The S&P 500 is a trademark of the Standard and Poor's Co. and consists of the 500 largest US based companies. One can't invest directly into the index.
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