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Product Review: Equitable Structured Capital Strategies

By , with Annuity FYI

If you’re a bit less conservative, you might warm up to an annuity that invests in the market and, while offering no guarantee against losses, does mitigate them.

Here is an attractive Structured Variable (Buffered) Annuity fit for today’s environment – and one, unlike most, available to New Yorkers.

If you’re thinking about investing in a popular fixed indexed annuity (FIA) these days, that’s no surprise. It offers stock market exposure and guarantees no losses—arguably an especially smart strategy these days.

No question, the market periodically sells-off, often sharply, and it’s disconcerting even to the most seasoned investors. And we all know that the market plummeted recently – specifically, the benchmark S&P 500 tumbled a whopping 34% in February and March.

But this doesn’t make the purchase of an FIA a no-brainer. Since the market hit bottom on March 23, it has registered a stunning rebound amid the coronavirus pandemic and all the accompanying economic doom and gloom. This would not have happened without a highly accommodative Federal Reserve and substantial federal government stimulus. But then these actions were predictable given what was going on.

The point? Highly volatile markets, while unsettling, are frequently not as bad as they first seem and often go on to rise, which is the whole point of investing in the stock market. If you’re highly conservative and hate the possibility of market losses, even short-term, then yes, an FIA or perhaps a plain-vanilla fixed annuity is best for you. But if you’re a bit less conservative, you might warm up to an annuity that invests in the market and, while offering no guarantee against losses, does mitigate them.

The lure in comparison to FIAs is higher market index participation rates – typically strikingly higher – and therefore the potential for higher returns.

This brings us to structured variable annuities (also known as buffered annuities), which is what we’re describing, and, specifically Equitable Structured Capital Strategies. It’s a relatively attractive structured variable annuity and, unlike most, can be purchased in New York State. (Only insurance companies domiciled in New York can sell annuities in that state, and Equitable is one of them.)

The Equitable structured variable annuity available in New York has a five-year duration. The minimum investment is $25,000.

New York investors can choose among three different investment options. They are:

  • A five-year product that offers a 288% cap on the S&P 500 with a 10% buffer, or downside protection, at a fee of 1% annually. So, investors are not penalized unless the index declines more than 10%. (The fee is eliminated if you lose money.)
  • Another five-year product offers a 123% cap on the S&P 500 with a 10% buffer, and for no fee. Those who prefer a 20% buffer get a 38% index cap. A 30% buffer is also available with a 22% index cap.
  • A third five-year product credits returns point-to-point annually, rather than one time over the life of the product. The cap is 11% annually. (Unlike other multi-year buffered annuities or FIAs with annual point-to-point crediting, this annuity guarantees that the cap rate will not change during the life of the product.)

    (These are the rates at the time of publication. Rates are subject to change every two weeks.)

Most of these versions of the Equitable annuity offer the option of investing in at least one other index – the small cap Russell 2000.

Predictably, investors interested in this annuity should be mindful of stock market prospects. As mentioned, the stock market has been rising in large part because of government stimulus in one form or another, mitigating what would be even a more draconian economic hit. There is also widespread anticipation among economists that the economy will begin rebounding significantly in the fourth quarter of the year or at least by the first quarter of 2021.

If this plays out, it should be a good backdrop for stocks. But prospects may not be this bright if the growing relaxation of stay-at-home orders in numerous states backfires and sparks another sharp increase in pandemic victims. There would also be issues if widespread anticipation of an anti-coronavirus vaccine does not materialize in the second half of 2021.

Prospective New York Equitable annuity buyers should take these different scenarios into consideration. In addition, they should also bear in mind that most Equitable options represent a relatively long-term investment, providing breathing room. For example, if a coronavirus vaccine was postponed until, say, 2022, that might not adversely impact the annuity’s stock market performance as much as a shorter-term investment.

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