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Product Review | Guggenheim Highlander 7 Fixed Index Growth Annuity

By , with Annuity FYI

The Guggenheim Highlander 7 is a fixed indexed annuity (FIA) with a generous participation rate that may fit the bill for savvy investors, who are looking for safe bond alternatives, especially if they bundle its diverse offerings.

If You’re Shopping for an Annuity, Guggenheim Highlander 7 May Be the Right Play at the Right Time

The stock market continues to rise into the stratosphere in fits and starts, which is great, but also makes it vulnerable to a sell-off, and rising inflation suggests this may not be the time to warm up to fixed investments. Interest rates in fixed annuities seem relatively decent today but could move higher – markedly higher, conceivably – tomorrow.
What’s an annuity shopper to do?

He or she should hedge their bets and diversify broadly, and if they can do that in one annuity, even better. This brings us to the Guggenheim Highlander 7, a fixed indexed annuity (FIA) that may not look all that enticing at first blush, but nicely fits the bill for savvy investors, especially if they bundle its diverse offerings.

For starters, the Highlander offers the opportunity to invest in the S&P 500 with a 40% participation rate, markedly more generous than what the competition is offering these days. About now you might be saying to yourself, “that doesn’t seem so great.” You need to remember that with these products you always receive the upside, but when the market goes down, not only do you not participate, you reset lower and don’t have to dig out of the hole. This is huge! And to round out our favorite options, also available is an opportunity to invest in the S&P MARC 5% index, a low volatility index with a 105% index participation rate. Among other things, this index invests in gold, an inflation hedge. If you bought this index 2 years ago, you would have made 11.08% over the past two years.

The Highlander, a growth FIA, is a seven-year product – nearly a third less than most FIAs – and this means you’re not locked in as long, an advantage given future uncertainty. Of course, as with most annuities, you do have access to 10% of your contract value annually and this is more than most people should be taking as part of a well-structured retirement and income strategy.

An investor could pick just one of these options, rather than all of them, but then all the bases aren’t necessarily covered in the event of one surprise or another. If you’re working with larger investment amounts, we usually recommend diversifying between multiple top performing indexes, with more than one company. This is less for safety and more for index diversification, e.g., in the real world, if you are allocated 50% each in two indexes and one goes up 10% and the other goes down 10%, you just broke even, but if this happens in an FIA, you are up 5%, because you get to keep the 10% gain and the 10% loss is always zero. “If you don’t know what the market will do – and you don’t – it’s always good to have your hand in multiple pots,” says one annuity broker familiar with the product. “Just because the S&P 500 winds up declining doesn’t mean the MARC 5 will decline, or vice-versa, and it’s nice to know you can have 105% of whatever the index will do with zero risk.”

It should be noted that the MARC 5 index will rarely perform as well as the S&P 500 in a very good year, but you will also never lose, and that’s very attractive to a lot of investors and retirees. In the 10 years ended in 2020, for instance, its best performance occurred in 2019, when it rose 13.7%. The same year, the S&P 500 handily beat the MARC 5, rising 28.8%. However, you have to consider that the S&P has significant risk especially over short periods, and the S&P MARC 5 has zero. So, we are talking a bit apples and oranges here. That said, most people would be happy with a nearly 7% annualized return over the past 3 years, when you consider that the closest benchmark are CDs.

Bear in mind, however, that you don’t receive 100% of the performance of the S&P 500 in any FIA – a significant limitation. It’s the price you pay for a guarantee against losses. So, in the end, you could fare as well or better in the MARC 5, especially if the stock market has a disappointing year or two.

The minimum investment in this annuity is $10,000. 10%, penalty-free withdrawals are offered starting in the second year.

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