Safety of Principal + Modest Return = The New Normal

Fresh on the heels of last week’s newsletter which featured the insights of Laura Tarbox, one of the nation’s most respected and honored Certified Financial Planners and principal of the wealth management firm The Tarbox Group in Newport Beach (CA), I thought it helpful to share with you another article from the April, 2009 edition of Financial Advisor magazine that suggests other CFPs around the country recognize the value of fixed annuities as well.

In his article “Steady Eddy Annuity Bets,” author Eric Rassmussen identifies a number of CFPs who have come full circle in their views of the annuities they once shunned. Among the comments and observations of the author and the financial planners interviewed:

• According to Beacon Research, sales of fixed annuities increased 60% over 2008;
• ” . . . annuities have become the new black as people try to keep their kitties safe;”
• People are “no longer seeking outsized returns” but instead “have gotten religion and decided that a certain righteous austerity is in order – safety of principal with modest return;”
• One financial planner has increased clients’ positions in fixed annuities and then uses the income streams to dollar-cost average back into the market (NOTE: This is an excellent strategy to employ with a structured settlement BTW!);
• One planner believes fixed annuities help clients achieve their number one goal: To not lose money!

While this particular article also discusses indexed annuities, a product our firm has yet to embrace for a variety of reasons, the comments specific to fixed annuities are ones we enthusiastically agree with. Since most of our clients are making decisions about funds stemming from the settlement of a personal, physical or nonphysical injury claim, safety and security are of prime importance. They cannot risk losing money.

Other noteworthy statistics about the market in this article that highlight how quickly fortunes can change. And how hard it can be to recover from the loss:

FACT: In 1930, the DJIA declined 51% (sounds a lot like 2008-2009 doesn’t it?). It didn’t rebound to its previous high until 1954 (24 years);

FACT: In 2000, the NASDAQ dropped from about 5,100 to 1,750 in a year’s time. Today it’s in the 2,400s and many believe it may never eclipse 5,100 for generations, if ever.

The long and the short of it is this: Great potential reward is not possible in the market without great risk. A careful analysis of risk tolerance is essential in designing any financial plan, including those using proceeds from a personal injury settlement. The Finn Financial Group is eager to assist those for whom safety and long term financial security are of utmost importance.