Have you been watching the financial markets lately? It seems that volatility has returned in a big way which is great for CNBC. However, it can be a little scary for most of our clients. It’s also a good time to discuss crediting strategies for indexed annuities. The S&P 500 point to point options have become very popular over the years, because the index is recognizable and they are easiest to explain. Nevertheless, the S&P 500 options are steadily becoming overshadowed by alternative strategies.
Maintaining a diversified portfolio is considered an effective strategy in reducing risk. One carrier we partner with offers an index option using underlying components consisting of Equity, Bond Futures indices and Commodity indices. It shifts its underlying components and uses rules based methodology on a daily basis for the highest return given a level of volatility. Also included is a risk control mechanism which seeks to maintain a 5% volatility target on a daily basis and constantly reduces the weight of the portfolio and rebalances it with a cash component.
New strategies provide a compelling story as to why the index may outperform the more common S&P index. It may be uncomfortable to think about changing your strategy recommendations, but we’re here to help walk you through it. These strategies can be a nice compliment to what you are already using in your business practice, and diversification is a word that clients are hearing a lot about in financial news reporting.