A Do-It-Yourself Kit for Investors: Build Your Own Equity-Indexed Annuity
Today, kids, we are going to build our own equity-indexed annuity.
Sound like fun? It's been a lot of fun for insurers, which sold $14 billion of these things in 2003 and an estimated $22 billion in 2004, according to Advantage Compendium in St. Louis. Insurance agents have also had a high old time, sometimes collecting commissions of greater than 10%.
And so far, I haven't heard any complaints from readers, who are clearly intrigued by these annuities, with their promise of tax deferral, downside protection and the chance to profit from a rising stock market. But I have heard the same question over and over again: Are these annuities a good deal -- or can investors do better elsewhere?
? Considering costs. Equity-indexed annuities offer tax-deferred gains that are linked to an underlying index, usually the Standard & Poor's 500, while guaranteeing that each year you will at least break even or earn a modest rate of interest. That appealing mix of benefits comes with two price tags.
First, there are steep surrender charges. I have seen equity-indexed annuities with first-year surrender fees of as much as 15%. That means that, despite the promise of principal preservation, you will likely lose money if you sell during the first few years.
Second, you usually won't earn the market's entire gain. Typically, you benefit from share-price appreciation, but not dividends. In addition, your annual return might be capped at 7%, or you might be limited to 90% of the market's increase, or you might get the market's gain minus 3.5 percentage points.
It's hard to say how much all this costs investors, because equity-indexed annuities don't publish expense ratios. But given the fat commissions paid to salesmen, it's a safe bet that fees are steep.
? Defending principal. Despite all that, equity-indexed annuities have huge appeal. That got me thinking: Is there a way to get the same benefits, but with better performance and no surrender charges?
Unfortunately, you can't duplicate the emotional appeal of an equity-indexed annuity, with its downside protection and upside potential neatly wrapped together in a single package. But you can replicate the investment benefits.
Let's say you have 10 years and $100,000 to invest. To guarantee you will still have $100,000 a decade from now, you could take $64,000 of your nest egg and sink it into 10-year zero-coupon Treasury bonds. Zeros don't pay interest. Instead, you buy them at a discount to their final maturity value and then make money as that discount narrows. If you prefer mutual funds, consider the no-load American Century Target Maturities Trust 2015.
Keep three things in mind. First, while you can lock in a final maturity value with zeros, the intervening performance can be erratic, because you don't have the cushion provided by regular interest payments. Second, you have to pay taxes each year on the imputed interest, so these bonds are best held in a retirement account.
Third, both equity-indexed annuities and zero-coupon bonds leave you vulnerable to inflation. "It's an illusion you're getting your money back," argues Moshe Milevsky , a finance professor at Toronto's York University.
? Gunning for gains. If you earmark $64,000 for principal protection, that leaves $36,000 for growth. To capture part of the market's upside, insurance companies would stash this $36,000 in derivatives.
You could try the same thing, by purchasing call options on the S&P 500. The calls would benefit from market appreciation, but the most you could lose is the money you paid for the options. Alternatively, you could buy a mutual fund that offers a leveraged stock-market play, such as those offered by New York's Potomac Funds, ProFunds in Bethesda, Md., and Rydex Investments in Rockville, Md.
If you prefer something more sedate, you might combine your zeros with a low-cost S&P 500-index fund from Boston's Fidelity Investments or Vanguard Group in Malvern, Pa. That would avoid the surrender charges of an equity-indexed annuity. But how would the performance stack up?
As I have argued before in these columns, returns are likely to be modest in the decade ahead, because price/earnings multiples are so high and dividend yields so low. That should be a good environment for equity-indexed annuities. Suppose the shares in the S&P 500 climb 6% a year during the next decade, for a cumulative gain of 79%. An equity-indexed annuity might capture 90% of that cumulative gain, turning $100,000 into $171,000.
In that scenario, however, a combination of zeros and an S&P 500-index fund may fare even better. The reason: Your index fund would collect the S&P's dividends, boosting your annual return to maybe 7.5%. Over 10 years, that would turn your $36,000 index-fund investment into $74,000. Add your bonds' $100,000 maturity value, and your total portfolio would be worth $174,000.
Think you will need even more upside to beat equity-indexed annuities? You could go lighter on zeros and longer on stocks. Sure, that means your total nest egg would be underwater if the entire S&P 500 became worthless.
But that seems unlikely, because stocks haven't even had a losing 10-year stretch since the Great Depression. "You can put a lot more than $36,000 in stocks and still have downside protection," reckons William Reichenstein, an investments professor at Baylor University in Waco, Texas.
股指年金DIY指南
孩子们，今天我要教你们怎么自己设计一个股票指数年金产品。
听上去是不是很有意思？保险公司从中得到的乐趣更多。据美国圣路易斯Advantage Compendium公司称，美国的保险公司在2003年卖出140亿美元的股指年金产品，2004年更达到220亿美元左右。保险代理人从中也获得不少好处，有时佣金高达10%。
到目前为止，我还没听到有读者对这种产品有所抱怨，显然他们已经被股指年金产品提供的税收优惠、最低收益保障和从股市上涨中获益所吸引。然而，我反复听到一个同样的问题：这些年金产品真的很好吗--投资者是否还有更好的选择？
成本考虑。股指年金产品是一种追踪某个股票指数（一般选择标准普尔500指数）并可以让投资者延期纳税的投资品种。它向投资者保证每年至少不亏损或有一个保底利率，投资回报可递延纳税。这种组合的产品很受欢迎，但它有两项主要成本。
首先，这类产品退保时扣除的手续费很高，我见过第一年退保时手续费高达15%的产品。这就意味著，虽然投资本金得到保障，但如果头几年退保的话，投资者很可能会赔钱。
其次，投资者通常无法获得股市的全部收益。一般来说，投资者只能享受股价上涨带来的收益，而享受不到红利分配。此外，年收益率可能有7%的上限，或只能得到股市上涨中90%的收益，或市场总体回报扣除3.5%后才算投资者的收益等。
很难说这些限制给投资者带来多大的成本，因为股指年金产品不公布费用率数位。不过从保险公司给予销售人员的高额佣金来看，这些产品的费用率低不了。
本金保障。尽管存在一些缺陷，股指年金产品仍对投资者很有吸引力。这让我在想：有没有什么产品能让我们既获得股指年金的好处，可收益却更高且不用支付退保手续费呢？
股指年金产品将本金保底与高额回报潜力巧妙地组合在一起，吸引了投资者的目光。虽然我们无法复制它这种能够在情感上抓住投资者的吸引力。但是，我们可以复制这种投资利益。
举个例子，比如你有10万美元计划投资10年，为确保10年后仍有10万元本金，你可以先拿出6.4万元购买10年期零息国债。这种债券不付利息，不过你能以到期票面面值的折扣价购买，通过折扣差获利。如果你更喜欢共同基金，可以考虑免销售佣金的American Century Target Maturities Trust 2015基金。
有三个注意事项。第一，虽然零息债券可以将到期本金的金额锁死，但其间债券的收益并不固定，因为没有固定的利息收入来进行缓冲。第二，你必须按每年的估算利息来纳税，因此这类债券最好是通过退休金帐户来操作。
第三，股指年金和零息债券都不能抵御通货膨胀风险。“人们总以为自己投资的钱能如数拿回，可实际情况并非如此”，位于多伦多的约克大学(York University)的金融学教授莫西?米莱弗斯基(Moshe Milevsky)说道。
收益问题。你已经投资了6.4万元作为本金保障，还剩下3.6万元作为收益投资。为获得部分市场上涨的好处，保险公司会将其投资于衍生工具。
你可以尝试同样的方法，购买标准普尔500指数的买入期权。如果股市上涨，这种买入期权能让你从中获利，而最大损失不过是购买期权所支付的权利金。或者，你可以购买与股市整体表现挂钩的共同基金，如纽约的Potomac Funds基金，马里兰州Bethesda的ProFunds基金，以及马里兰州Rockville的Rydex Investments基金。
如果你喜欢谨慎一点的投资策略，那就考虑零息债券和低成本的标准普尔500指数基金的投资组合，波士顿的Fidelity Investments公司或宾夕法尼亚州Malvern的Vanguard Group公司都提供这类基金产品。这样就可以避免支付退保费。但这样操作的投资回报情况怎样呢？
正如我在以往专栏文章中所说，在未来10年内，股市回报率不可能很高，因为现在股票市盈率很高而派息率太低。这为股指年金提供了一个很好的运做环境。假设标准普尔500指数在未来10年内每年增长6%，则累计收益为79%。股指年金能够抓住90%的这种累计收益，也就是说，将10万美元本金变为17.1万美元。
这种市场情况下购买零息债券和标准普尔500指数基金的组合可能会更好。原因在于：指数基金可以获得标准普尔500指数成份股的股息收入，将年收益率推高至7.5%左右。经过10年的投资，你的3.6万元指数基金投资可以变为7.4万元，加上购买零息债券获得的10万元本金，总的投资组合将价值17.4万美元。
是不是想著要获得比股指年金更高的回报呢？你可以少买零息债券，多买股指基金。当然，这种做法意味著一旦标准普尔500指数表现不佳，你的投资可能就不能保本了。
不过这种情况不太可能发生。自大萧条以来，美国股市还从未有过10年期的亏损情况。“你可以投入超过3.6万美元在股票市场，同时依然享受本金的安全”，德克萨斯州Waco市的贝勒大学(Baylor University)的投资学教授威廉?瑞金斯坦(William Reichenstei)说道。
