Refinancing Pause – Capitalizing on Rates

For example, you’ve probably noticed that you can now earn a higher interest rate at the bank on savings accounts or CDs than you’ve been able to in quite some time.

But there’s another opportunity that I’d like to share today. Rising interest rates have not only impacted what we call “red money” (which involves risk in the stock market) and “yellow money” (with higher bank savings rates) but also “green money.”

To provide some context, green money falls between yellow and red. It offers principal protection, meaning you can’t lose your principal and interest earned due to market volatility while aiming to provide a higher return than traditional fixed-rate options like CDs or savings accounts.

This is achieved by linking the returns to major market indexes, such as the S&P 500. When the market goes up, you receive a higher return; when it goes down, you don’t incur losses—you simply earn zero for the year.

Without getting too technical here, the key concept is that insurance companies use hedging tools to capture returns when the market is favorable and avoid losses when it’s not. (If you’d like more information on this, we can provide as much detail as you need.)

Now, this NEW opportunity lies in the caps associated with green money strategies. Let’s focus on caps for a moment. In an index strategy with a cap, that is the most you can make for the year. If the Cap is 5% and the index does 10%, you would receive 5%.

The caps on these strategies are determined by a few factors, including the interest rates at the start of a green money contract, market volatility, and any additional riders within the policy.

The initial interest rate plays a significant role because it dictates how insurance companies can secure your principal by investing in long-term fixed accounts, like bonds, and using the interest to link your returns to the index.

For a long time, we’ve been in a low-interest-rate environment, leading to decreasing caps over the years. In the early 2000’s caps were 10%, then 8%, then 6% and 4% and sometimes even lower.

However, here’s the exciting part: due to current interest rates being higher than they’ve been in over two decades, caps on green money strategies have increased.

Now, you can potentially lock in caps ranging from a conservative 7.5% to a remarkable 11.5% on the S&P 500. Consider this: if the market goes up by 15%, and your cap is set at 10% or 11%, that’s a solid return, safeguarded against market downturns.

While they are created to beat “yellow” money returns over time, there are periods when they also outperformed the overall market.

For example, when we look back at how these index products performed between 2000 and 2010, they not only outperformed yellow money options but also surpassed most red money choices. This was because they avoided significant market losses.

If you’re approaching retirement or already in retirement, and market volatility concerns you, this becomes especially relevant.

It’s like refinancing your mortgage when interest rates drop—people rush to take advantage of lower rates but reversed.

With higher interest rates, you may want to “refinance” your retirement by reallocating some of your accounts to benefit from these increased rates.

While you could consider options like CDs or savings accounts, here’s a crucial point to remember: when refinancing a house, you don’t want to lock in a low-interest rate for a short term.

Similarly, when we’re refinancing your finances, we don’t want to lock in a higher rate for just a short period. For example, a 10-month CD is only locking in rates for a short time.

It’s essential to secure these advantageous rates for the long term. You can achieve this by investing in green money through index annuities, which offer higher caps than we’ve seen in years.

Of course, circumstances can change, and interest rates might fluctuate. However, a lot depends on the initial terms of your investment. Plus there are other factions right now that give many insurance companies currently have incentives to maintain higher caps in years to come.

Market Update – Refinancing Reversed Taking Advantage of Higher Interest Rates: It’s an exceptional time to explore the possibilities of shifting your funds into green money and capitalizing on these higher interest rates, not just for a few months or a year, but for an extended period. This approach also allows you to reduce exposure to market risks.

The opportunity to secure these elevated cap rates in green money products has not been this promising in two decades.

We’ve been actively assisting clients in taking advantage of this opportunity throughout the year, and we look forward to helping you too.

If you have more questions and would like to schedule a personal one-on-one call with Michelle, click HERE to access Michelle’s calendar and schedule a day and time that is convenient for you.

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