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You are here: Home / Articles / Annuities Last Decade

Annuities Last Decade

A Look Back – The First Decade of this Century Reviewed

Was this really the lost decade?

It was certainly a turbulent ten years. The first decade gave us remarkable opportunity and remarkable volatility. These yers tested our patience, and many investment strategies. They taught us to hold on, hang in there and diversify.

Stocks and variable annuities#. Was it really a “lost decade”? It depends on how you were invested. Yes, the Dow ended the 1990s at 11,497.12 and ended the 2000s at 10,428.05, amounting to a 9.30% slip. The S&P 500 lost 24.10% in the same interval. If you had invested a lump sum into an index fund tracking the S&P 500 on December 31, 1999, and left those assets untouched for ten years, you would have ended up with a sizable loss.1,2

**Guarantees, including optional benefits, are backed by the claims-paying ability of the issuer, and may contain limitations, including surrender charges, which may affect policy values. During this segment, Dick and Eric are referring to Fixed Annuities unless otherwise specified.

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That may sound dismal – but how many of us actually invest this way? Very few of us make one lump sum investment and just watch it for ten years. Thanks to diversification, re-balancing and constant inflows of new money, some investors were able to grow their assets and/or outperform the S&P 500 in the past decade. Unfortunately the majority of individual investors, according to the well-known Dalbar report, actually did far worse than the poor performing indexes!

The fact is, five sectors of the S&P 500 gained 10% or more across the 2000s – health care (+10.85%), utilities (+10.92%), materials (+24.91%), consumer staples (+31.84%) and energy (+102.12%).2

Few articles about the “lost decade” mention this notable factoid: the Russell 2000 advanced 23.90% during the 2000s.2 Mutual funds that focused on buying undervalued small-company stocks gained an average of 8.3% annually in the 2000s.3 Timing and a consistent tactical strategy can make a difference.

Outside America, developing stock markets shattered all expectations while the developed markets mirrored American performance. Look at the decade-long gains in key indices in some of the BRIC nations, as measured by CNBC.com: China, +72%; India, +249%; Brazil, +301%; Russia, +863%. Compare all that with the benchmark indices in Japan (-44%), France (-34%), Great Britain (-22%) and Germany (-14%) in the past decade.4 Emerging market mutual fund^s gained an average of 9.3% per year in the last ten years.3

Fixed index annuities for many years treated as an unnecessary and mostly ignored confounded critics as many outperformed the overall stock market during this first decade of the twenty first century. Fixed index annuities can be a very useful retirement strategy. As the name implies, FIAs are fixed annuities linked to the performance of a stock market index (often the S&P 500, DOW Industrials or the NASDAQ). Because of this stock market indexing strategy, they can sometimes bring conservative investors very nice returns (annuity rates 2018); often, considerably better returns than CDs, bonds or money market accounts. From the 1999 to 2010 many fixed index annuities have actually outperformed the indexes they were correlated with. However they really aren’t designed to outperform the stock markets – even though they do at times; they are designed to outperform the fixed markets over the long term.

Principal protection and a chance to benefit from market gains make fixed index annuities quite attractive. During the accumulation phase of an FIA, you have the opportunity to benefit from stock market gains while your principal is protected against stock market losses. The annuity contract usually **guarantees you a minimum rate of interest on your purchase payments while the annuity is growing; the insurance company involved will credit you with either the minimum return stated in the contract or a return based on the performance of the linked index.

Commodities. It was a decade of amazing gains in the broad commodities market. From the end of 1999 to the end of 2009, gold advanced 278.52%. How about silver and copper? Silver gained 208.91% and king copper rose 287.78%. Crude oil rose 210.00% during the 2000s.2

How great a decade was it for the commodities sector? Only one notable commodity posted a ten-year loss from 12/31/1999 to 12/31/2009. That was palladium, which retreated 8.98%. On the other hand, we know that 16 commodities gained 100% or more across the decade.The two biggest gainers during the 2000s were a pair of crops: sugar (+340.36%) and cocoa (+293.31%).2

Highs and lows. We are ten years past the bursting of the tech bubble – March 10 will mark the 10th anniversary of the NASDAQ’s all-time high of 5,132.50.5 And of course, a decade-defining geopolitical event rocked the markets 18 months later.

General Motors and Chrysler filed for bankruptcy protection in 2009; at the start of the decade, so did Enron – the company that Fortune Magazine ranked as “most innovative” each year from 1995-2000.6 In 2008, Lehman Brothers, Morgan Stanley, Goldman Sachs, Merrill Lynch and Washington Mutual either folded, mutated, or were bought up while AIG, Freddie Mac and Fannie Mae were bailed out.

The Dow hit a new high of 11,723 in January 2000, a post-9/11 closing low of 7,286 in October 2002, and then ended 2003 at 10,453 (as the DJIA gained 25.32% that year while the dollar lost 14.67%). The Dow hit new peaks of 11,727 on October 3, 2006 and 14,164 on October 9, 2007. A close of 11,215 on July 2, 2008 officially marked the start of a bear market.7

From March 9, 2009 closing lows to the end of the year, the Dow shot up 59.28% and the S&P 500 advanced 64.83%.2 This led to some to entertain tantalizing thoughts about the birth of a new bull market. Or it is simply a cyclical bull in a secular bear? The jury is still out, as the saying goes; we can hope for the best.

What did we learn? The 2000s taught us lessons about irrational exuberance (companies that had never made a dime were probably not worth billions) and lessons about the value of diversifying your portfolio. We also learned lessons in perseverance – those who stayed invested have seen their portfolios make a strong recovery.

The 2000s put investors through some seemingly unimaginable financial headlines. It was a rare decade, an aberrant one in stock market history – for example, the Dow hadn’t had a negative decade since the 1930s, and it had advanced 228.25% over the 1980s and 317.59% for the 1990s.8 Will we see it make a double- or triple-digit advance in the next ten years? We don’t know. Past performance is no indicator of future success. Yet the awesome potential of the stock market and commodities markets should not be dismissed – and with economies healing the world over, it is clearly time to look forward and stay invested.

These are the views of AnnuityGuys.com, which does not give tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent financial professional planner/educator.

Citations

  1. money.cnn.com/quote/historical/historical.html?pg=hi&close_date=12%2F31%2F99&mode=add&symb=DJIA [1/16/09]
  2. cnbc.com/id/34645043 [12/31/09]
  3. articles.latimes.com/2009/dec/31/business/la-fi-stocks31-2009dec31?pg=3 [12/31/09]
  4. cnbc.com/id/34643111 [12/31/09]
  5. smartmoney.com/investing/economy/the-financial-decade-in-review/?page=2 [12/31/09]
  6. martmoney.com/investing/economy/the-financial-decade-in-review/?page=4 [12/31/09]
  7. the-privateer.com/chart/dow-long.html [12/31/09]
  8. cnbc.com/id/34619797 [12/29/09]
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  ** Guarantees, including optional benefits, are backed by the claims-paying ability of the issuer, and may contain limitations, including surrender charges, which may affect policy values. Annuities are not FDIC insured and it is possible to lose money.
Annuities are insurance products that require a premium to be paid for purchase.
Annuities do not accept or receive deposits and are not to be confused with bank issued financial instruments.
During all video segments, Dick and Eric are referring to Fixed Annuities unless otherwise specified.


  *Retirement Planning and annuity purchase assistance may be provided by Eric Judy or by referral to a recommended, experienced, Fiduciary Investment Advisor in helping Annuity Guys website visitors. Dick Van Dyke semi-retired from his Investment Advisory Practice in 2012 and now focuses on this educational Annuity Guys Website. He still maintains his insurance license in good standing and assists his current clients.
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  # Investors should consider the investment objectives, risks, charges and expenses of a variable annuity and its underlying investment options. The current prospectus and underlying prospectuses, which are contained in the same document, provide this and other important information. Please contact an Investment Professional or the issuing Company to obtain the prospectuses. Please read the prospectuses carefully before investing or sending money.


  ^ Investors should consider investment objectives, risk, charges, and expenses carefully before investing. This and other important information is contained in the fund prospectuses and summary prospectuses, which can be obtained from a financial professional and should be read carefully before investing.


  ^ Eric Judy offers advisory services through Client One Securities, LLC an Investment Advisor. Annuity Guys Ltd. and Client One Securities, LLC are not affiliated.


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