Monthly Average Vs Point-to-Point Cap
- Thread starter jjjtrio
- Start date
- 1,802
Absolutely. I recently ran several hypothetical's that compared three different crediting methods:
Annual Pt. to Pt.
Monthly Pt. to Pt.
Monthly Averaging
I picked several different dates in '98 so that my example would carry some merit. Over a 10 year period both the monthly pt. to pt. and annual out performed the monthly average by almost 16% over the ten years. Great Question.
Annual Pt. to Pt.
Monthly Pt. to Pt.
Monthly Averaging
I picked several different dates in '98 so that my example would carry some merit. Over a 10 year period both the monthly pt. to pt. and annual out performed the monthly average by almost 16% over the ten years. Great Question.
- Thread starter
- #3
Ichiban
Expert
- 62
Historically speaking Point to Point performs the best of course depending on the Cap (or Participation, Spread) that is on the strategy. I also like it because it is the easiest for a client to track and understand. With a monthly average the index may be higher at the end than at the start but the client may still get a zero return because of the effect of averaging.
Really it comes down to what type of market you are expecting though. All the strategies have certain markets that they can excel in. In an economic environment that is rather turbulent an Averaging approach seems most prudent. If you are expecting consistent or sustained growth over where you are now then the point to point makes sense.
I am not a fan of the monthly point to point. It sounds good and offers a lot of upside but there is no cap on a negative month only on a positive month so in january the market goes up 4% you have a 2.5% cap you get 2.5% next month it goes up 2% you get 2% so you are at 4.5% so far then March comes and drops 7% you are at -2.5%. Of course at the end of the year you can get nothing less than zero but a few bad months can really strip your returns.
Really it comes down to what type of market you are expecting though. All the strategies have certain markets that they can excel in. In an economic environment that is rather turbulent an Averaging approach seems most prudent. If you are expecting consistent or sustained growth over where you are now then the point to point makes sense.
I am not a fan of the monthly point to point. It sounds good and offers a lot of upside but there is no cap on a negative month only on a positive month so in january the market goes up 4% you have a 2.5% cap you get 2.5% next month it goes up 2% you get 2% so you are at 4.5% so far then March comes and drops 7% you are at -2.5%. Of course at the end of the year you can get nothing less than zero but a few bad months can really strip your returns.
- Thread starter
- #5
- 1,802
On average of about 2.6% per year. But as it has been said, every method works best in different types of economic environments.
Personally, I would recommend using annual pt. to pt.; which is my favorite. Easiest to understand, but you do have to be careful of the caps, spreads and participation.
One method to stay away from would be the threshold crediting method; regardless of the strategy. Great topic.....
- 2,455
insuranceexec
On the LSW Gold for instance you can choose between the daily average and point to point (fixed in there as well).
Are you still sticking with point to point.
I did one a couple of days ago and did 50% fixed, 40% point to point (ending) and 10% daily.
It can be changed once a year..............
On the LSW Gold for instance you can choose between the daily average and point to point (fixed in there as well).
Are you still sticking with point to point.
I did one a couple of days ago and did 50% fixed, 40% point to point (ending) and 10% daily.
It can be changed once a year..............
- 1,802
Give me a call tomorrow and I will walk you through it. I still think that pt. to pt. is better, but you have to be careful of the cap, participation, and/or spread.
- 10,708
Does anybody know of agents that actively manage indexed annuities? Such as hypothesize future market conditions and allocate accordingly on an annual, bi-annual, or quarterly basis?
I realize that this would depend on the amount of times you can reallocate each year for that specific product. But it would be an interesting experiment to try.
Also the performance triggered fia index accounts are great. Lincoln Financial has them, and I think a few others do as well. But the account has a set credited interest rate, if the chosen index meets or exceeds the previous year you are credited the full amount. At one time earlier this year lincoln was offering 7.5% in this account, and all it has to do is be the same or more the next year and you get all 7.5....its great!!
I realize that this would depend on the amount of times you can reallocate each year for that specific product. But it would be an interesting experiment to try.
Also the performance triggered fia index accounts are great. Lincoln Financial has them, and I think a few others do as well. But the account has a set credited interest rate, if the chosen index meets or exceeds the previous year you are credited the full amount. At one time earlier this year lincoln was offering 7.5% in this account, and all it has to do is be the same or more the next year and you get all 7.5....its great!!
- 1,802
American National has a good short term performance triggered annuity with ROP.
For the most part rates have dropped on performance triggered annuities, and all index annuities for that matter.
Rates were higher at the first of the year when the outlook was bleak for the majority of the indices. Now that the majority of them are turning around; rates are going down.
This is how the annuity companies hedge against paying the client too much. I hope this helps.......
