Expecting the unexpected

Dr. David Blitzer, managing director and chairman of Standard & Poor's Index, said "When fear is rampant, we believe the risks are huge; when greed rules the day, we believe there are no risks." This is certainly a time of fear and risks, but opportunity for growth still exists. 

This is great news for those in the building phase of their financial lives who really need the market to recover. There does exist a way to protect 100% of your original investment -- even if the recovery doesn't happen as soon as we all would like.

This investment strategy is called the Split Strategy. It's an old strategy originally designed to provide tax efficient income along with tax efficient growth. It creates income desired, yet provides 100% of the original investment at the end of the term -- without the risk of loss. Very helpful if you're in the income phase of life. But as you'll see below, those in the building phase can benefit as well.

To illustrate the Split Strategy, let's assume a ten-year time horizon without an immediate need for income from the initial investment. Your objectives are to have -- at a minimum -- 100% of your original investment at the end of ten years, eliminate the potential risk for loss of principal, and have the ability to participate in the stock market.

• Initial Investment:
  $250,000
• Investment Duration:
  10 years
• Investment Objectives:
  Protect 100% of initial investment
  Eliminate risk of loss of initial investment
  Participate in the record-low stock market.

Using the Split Strategy, divide your money between a fixed dererred annuity and the stock market. The fixed deferred annuity has a guaranteed rate of return. It can't go down. You'll be using this secure investment to protect your entire investment.

• Fixed Deferred Annuities Investment: $150,000
  Current rate of return: 5.25% for 10 years (on 3/25/2009)
• Stock Market Investment: $100,000
  Current rate of return: ?

At the end of the 10 year period, your $150,000 investment in a fixed deferred annuity has grown to $250,214. That 5.25% rate (as of 3/25/9) of tax-deferred interest compounding cannot change. And just like that, your initial investment -- for the entire Split strategy -- is protected. Guaranteed.

What about the $100,000 that went into the stock market? That all depends on the market and it's impending recovery. But even if the market didn't recover and your $100,000 is now only worth $50,000, that money still gets added to the $250,214 you gained with the fixed deferred annuity. You're now $50,214 ahead of your initial investment. That's a gain of over 20% --when you lost money in the stock market.

And even better strategy is to trade out the stock investment in favor of an alternative investment, such as an equity indexed annuity. This special type of annuity can provide the type of growth seen in securities trading, but with additional guarantees and protections not found within the market. The gains will not likely be as high, but many investors find the lower returns a fair price for the protections offered. 

It's an uncertain time out there. But the Split Strategy may make sense for you. We'd be happy to show you how this strategy can work for you.