Sometimes One of the Best Positions to be in is the Contrarian…
Sometimes one of the best positions to be in is the contrarian…
A recent study from LIMRA, an insurance industry trade group, confirmed that annuity sales in 2022 totaled $310.6B. The prior sales record was $265B in 2008. What do 2022 and 2008 have in common? Negative stock market returns. In 2008 & 2022 the S&P 500 returned negative performance of -37% & -18%, respectively.
As human beings, we need to be careful to avoid making emotional decisions regarding our finances. When faced with pain or concern, our human nature may make us feel like we have to DO something even though that action might not put us in a better position in the future. We think that is why annuity sales have spiked again – the “pain” caused by negative market performance has led people to move capital into more protective positioning.
However, when we make decisions about our finances, we always should think about the long-term implications.
What did the markets do in 2009, the year after the last spike in annuity sales?... The S&P 500 was up over 26%. How will the stock market perform in 2023? Even though it is off to a good start we cannot be sure where the year will end up. But we do know that the longer-term investment prospects for holding exposure to fairly-valued stocks look better now than it did in 2021.
The best way to achieve financial independence is to craft an achievable and realistic goal….and STICK WITH IT! Review your progress from time to time, consider all available investment alternatives and look to make tactical opportunistic adjustments, but in most cases, wholesale changes are ill-advised. And always remember that the best investment returns are usually made when pessimism is at its highest, more people are selling stocks and more capital is being committed to “safe” investments--especially those that are complex, generally expensive and promise some level of “guaranteed returns.”
Unfortunately, we place a lot of the blame here on the financial industry. We’ve said it many times, “fear sells”. Annuities generate huge commissions for Wall Street so when an investor wants immediate relief from the pain of a bear market, it is doubtful they will receive much pushback from any commission-incented broker. Think of it this way, why would Wall Street firms pay high commissions for annuities but not for ETF’s?
Don’t be afraid to take the contrarian position! In more cases than not, selling out of stocks AFTER a decline-- to lock in a low long turn return in an annuity--probably will be something your future self will regret.
All the best,
NCM Capital Management