The Dog Days are Here: How an Annuity Can Protect Your Nest Egg

The dog days of summer are here. The dog days represent the stretch between mid-July and late-August in which temperatures reach their highest levels. This part of the year originally got its nickname from the ancient Greeks and Romans. They referred to this stretch of the calendar as the “dog days” because it’s when the dog star, Sirius, became visible in the night sky. Over time, the definition of “dog days” changed to refer to the heat and humidity that often leaves dogs seeking shade.1

This upcoming period of time is also the dog days of the stock market. Historically, August and September are two of the worst-performing months. Going back to 1950, August has an average return of -0.22 percent. There have been 38 Augusts in which the market was positive and 31 that were negative. September’s performance has been even worse. The average September return going back to 1950 is -0.62 percent, with 31 up months and 38 down months.2

Why have August and September underperformed other months on average return? There are multiple theories. Some think investment managers use that time to reallocate before the fourth quarter. Others think it may involve tax harvesting on losses. Of course, it could also be complete coincidence unrelated to any underlying cause.

Market downturns happen all the time for a variety of reasons. Even though August and September have track records of being down months, it doesn’t mean they always are. It’s impossible to predict market direction in the short-term.

However, you can implement strategies to protect your assets from market volatility over the long-term. One such strategy is a fixed indexed annuity (FIA). These insurance products offer a variety of benefits, but one of the most powerful is protection from market downturns.

How a Fixed Indexed Annuity Protects Your Assets

A fixed indexed annuity is a deferred annuity in which your assets have the potential to grow over time. You contribute a lump sum, which then earns interest each year based on the performance of a market index, like the S&P 500. All accumulation is tax-deferred as long as the funds stay in the annuity.

There are a few different ways in which interest is calculated. However, in the simplest example, assume your market index, the S&P 500 for example, has an increase in a specified period of time. You earn a portion of that growth as interest.

Your portion is based on your contract’s “participation rate.” For instance, if your index increased by 10 percent and your participation rate is 60 percent, you would earn 6 percent interest. Most contracts also have a cap, which means there is a maximum amount of interest you can earn in any year, no matter how much your index increases.

While your upside is limited, so is your downside. In most FIAs, you have no exposure to market declines. Your “participation rate” doesn’t count against declines. If the index goes down, you may not earn interest for that period, but you also won’t lose money.

If you’re worried about market declines, either in the “dog days” or just in general, an FIA could be a good protection tool for a portion of your assets. A financial professional can help you determine if an FIA is right for you.

Ready to protect yourself against volatility? Let’s talk about it. Contact us today at Protecting Your Retirement LLC. We welcome the opportunity to help you analyze your needs and develop a strategy. Let’s connect soon and start the conversation. Our Telephone number is 913-648-2700.

1https://news.nationalgeographic.com/2015/07/150710-dog-days-summer-sirius-star-astronomy-weather-language/

2http://www.moneychimp.com/features/monthly_returns.htm

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