You’ve heard that indexing is a great way to invest your money, but there’s one problem – you’re not quite sure what it means. Don’t worry. You’re not alone. The financial industry is filled with jargon that can be confusing to anyone on the outside. Keep reading to learn what indexing means, and how it can be used to create attractive annuity and life insurance options.
An Introduction to Indexing
You might not completely understand what indexing means, but you’ve likely heard of some popular stock indexes before. The Dow Jones Industrial Average? S&P 500? Nasdaq 100? These are just a few examples of stock indexes.
When talking about stocks, indexes are used to measure overall performance of the stock market. People can also invest in them. Individual stocks may go up and down for a variety of reasons, and some stocks may become worthless while others see a tremendous surge in value. An index can also rise and fall, but it is generally less risky than individual stocks because it is diversified by nature. According to Investopedia, the S&P 500 saw an average annual return of 10 percent between 1926 and 2018.
Life Insurance and Annuities
People have many options when comes to investing their money and saving for retirement. Two of these options take the form of annuities and life insurance.
Annuities can be used to create future income. You invest now and enjoy an income stream during retirement. This type of investment can be a good option for individuals who are worried about outliving their retirement savings.
Life insurance is often associated with the death benefit, but permanent life insurance policies pull double duty as investment tools. With a universal life insurance policy, you pay premiums now, and your policy accumulates a cash value. You can tap into this cash value for any reason.
Growing Your Investment
Whether you’re using annuities or life insurance, you want your investment to grow over time. This can be achieved in a few different ways. A fixed rate gives a guaranteed rate of growth. This is dependable, but the rate of growth is limited. A variable rate gives a changing rate of growth. This can lead to greater reward, but it can also be risky.
An indexed annuity or universal life insurance policy can offer a middle ground. It provides a minimum guaranteed interest rate, with a chance for higher returns. As the name suggests, the possibility for higher rates is dependent upon the performance of an index.