Estate shrinkage due to investments losses

If one of your goals is to actually leave your heirs an inheritance, you should consider the overall safety of your investment portfolio.

All too often we see sizable estates reduced to ashes overnight because of risky investments.

Back on March 10, 2000 the NASDAQ composite reached its all-time high of 5,132. By October 10, 2002 it had fallen to just 1,108.

A hypothetical $100,000 invested during its high and held to its low, would have fallen to a dismal $21,590. That’s a loss of more than 78%!

To make matters worse, it required a return of 463% growth just to break even. Assuming an 8% annualized return, it would take 20 years to recoup the loss.

Fortunately, the NASDAQ finally did make it back to its high in June of 2016, but how much estate value was lost for those who died or planned to retire near the bottom or on the way up? Unfortunately, many American’s had to keep working and exchange their Golden Years for working at the Golden Arches.

It has been a full nine years since the 2008 market crash, which wiped out $2 trillion, or 20% of American’s retirement savings.

Since then, the market has returned to historic highs. And now with President Trump’s tax reform, there is a sense of euphoria, mingled with an enormous amount of fear.

The truth is that Americans have lost 49% of the value of their stock portfolios, TWICE since 2000. Knowing that and seeing where the market is today, it is only a matter of time before a major correction happens again.

Take a look at the historical chart of the S&P 500 over the past 20 years, from December 1997 to today.

My 5 year old granddaughter, Juliette is learning about patterns in kindergarten. Where do you think she continued the next line when I asked her to finish the pattern? Euphoria can’t last forever.

Financial advisors generally recommend that the older we are the more we should have in safe investments.

One conventional rule of thumb suggests for every year of age, an equal corresponding percentage should be in low risk investments. For example, a 70-year old should have 70% in safe guaranteed investments and 30% at risk.

Today, that 70% “safe money” investment is becoming harder and harder to find. With bond rates near all-time lows, is it really considered “safe” to take the traditional route and invest in bonds?

Remember the value of your bonds decrease as interest rates rise. With the 10-Year Treasury Note at less than 2.5%, there is only one direction rates can go…up, which will simply decrease the value of your bonds.

market trendIt’s time for a gut check. Where are you going? Where do you want to go? How much do you want as a monthly retirement income? What do you want to leave behind? Are you flying Cheapo Air, when you could be flying first class? Are you set up to kill the golden goose when the market turns? A provident farmer always protects his “seed corn.”

So where can you invest today that provides true safety on the downside during a bear market, while still earning enough on the upside to combat the eroding purchasing power caused from inflation? I’ll give you a hint: You won’t find it at your local bank. CDs paying a taxable 1% and money markets paying 0.05% aren’t going to help.


Fortunately, today the financial industry has created new investment opportunities installed with safety features that allows for participation in market linked returns without the risk of plummeting into peril.

These “safe money” vehicles are Indexed Annuities and Indexed Universal Life. With both products you’ll earn tax-deferred stock market-linked interest returns if the market goes up. But if the market goes down, you are guaranteed to never lose a dime. This guarantee is made possible because of four specific guardrails:

  • First, your principal is backed by the assets of the insurance company issuing your Indexed Annuity or Indexed Universal Life.
  • Second, you are contractually guaranteed to never participate in any downturn of the market. Some plans provide a minimum interest of 2%. Most guarantee that your earnings for the year will never be below zero in a negative market.
  • Third, all upside growth is locked in periodically (you select the time frame, usually on an annual basis) with no possibility of ever losing any gains you previously earned.
  • Fourth, recent improvements have been made to both strategies, offering the option to generate a lifetime income stream for both you and your spouse. These new provisions can be set to guarantee a growth rate as high as 7% on the balance that determines your future income payments. Even if you live to the age of Methuselah, your pension-like guaranteed income will continue to pay, month after month as long as you live!

Indexed Annuities and Indexed Universal Life are the only products that provide both a guarantee to never lose on the downside, with the ability to participate in the upside.

It is for this reason Mark Skousen, editor of Forecast and Strategies recently stated, “In my opinion, now would be a great time to take some of your chips off the table and lock-in your gains with an Indexed Annuity or Indexed Universal Life.”

We have conducted hundreds of Estate Analysis, and I have had the pleasure of learning what most affluent American’s own in their portfolios.

It’s astonishing how much is comprised of the same companies: Facebook, Apple, Alphabet (Google), and Amazon; and if the stocks aren’t owned directly, they are in their mutual funds.

Unfortunately, many Americans have set their retirement up to live or die by these few correlated stocks. They’re performing fantastically right now, just as the en vogue tech stocks did in the late 90’s.

Again, Indexed Annuities and Indexed Universal Life policies have built in downside protection. Any gains once earned are locked in and banked.

So, if and when the market correction occurs (the next tech wreck or real estate debacle) Indexed Annuity and Indexed Universal Life investors will sit safely on the sidelines with 0% losses to their portfolios.

Let me ask you, what would you rather have, only one half of the market’s upside with zero percent of the downside, or to remain fully invested?

Below is a hypothetical example of $100,000 invested in the Nasdaq 100 vs an Indexed Annuity with 47% Index Participation and a 2% annual spread.

The Indexed Annuity locks in interest earned on an annual basis. Neither dividends nor advisor fees were included.

Indexed Annuity vs Nasdaq 100 Index
$100,000 Initial Deposit 1/1/2000 – 12/1/2017

As you see, taking those big losses really hurt in our Nasdaq position which dropped clear down to $27,526 by 2003. But thanks to the latest bull run, it has nearly caught up to the Indexed Annuity.

Who knows, if we can continue this recently prosperity, with enough stimulus, the Nasdaq 100 could even surpass the Indexed Annuity. But that is a big uncertainty.

What most people forget to take into consideration are the severe ramifications market declines can have if they occur early in retirement. Consider our same Indexed Annuity vs Nasdaq 100 example, only this time we will assume a $1,000,000 portfolio and taking just 6% per year of the initial value, $60,000.

Indexed Annuity vs Nasdaq 100 Index
$1,000,000 Initial with $60,000 Annual Withdrawals
1/1/2000 – 12/1/2017

As you can see, our Nasdaq 100 investor, extracting $60,000 per year, with the market corrections through the years, ran out of money in year 8.

On the other hand, because our recommended Indexed Annuity didn’t lose ground in the down years, 17 years later the account balance would have held to $650,700, enough for many more years of income and plenty leftover for loved ones.

Frankly, I want to leave my children and especially my grandchildren a financial legacy.

I don’t want to make them rich, but I feel good about making sure generation three has a head start in life.

That is why my wife and I have a logical permanent life insurance portfolio in place and a percentage of our investments in “safe money investments” like Indexed Annuities.

Call 1-888-892-1102 and ask our “safe money” specialist, the President of our firm, and my oldest son, Todd Phillips, for a copy of his book: The Future of Retirement Savings, and for his powerful article titled: “Could Ramsey be Wrong?”.  You can also ask him to send you his recommended “Annuity of the Month.”

Until next time,

David Phillips

David T. Phillips is CEO of Phillips Financial Services and founder and CEO of Estate Planning Specialists. Mr. Phillips is a nationally recognized consumer advocate for insurance, annuities and estate planning with over 42 years of experience. He is the author of bestselling books and has been a featured on national television including: CNN, Fox News, CNBC, Money Talks, and Bloomberg. For more information go to