“Guaranteed” Not to Lose Money in the Stock Market? What’s the Catch?
I’ve been hosting Retirement Optimization workshops for women, and I’ve seen firsthand how many have been misled by financial predators posing as “financial advisors.” I want to share this cautionary tale so you can recognize if you’ve been sold high-fee, high-commission financial products that may not be in your best interest.
The Hidden Annuities
A shocking 100% of the women I’ve worked with had no idea they had annuities in their retirement accounts. It wasn’t listed on their statements, and they were never told. Only after reviewing their investments online could I identify that they had been sold annuities in their 403(b) or IRAs.
Mary’s Story: A “Free” Financial Planner’s Expensive Advice
In 2013, a woman I’ll call Mary was referred by her well-meaning colleague Sally to a financial advisor, Bob. Sally believed Bob had helped her grow her 403(b) at no cost. When Mary met Bob, he promised she could invest in the stock market with a guarantee that she wouldn’t lose her initial investment. He assured her of guaranteed income for life.
Trusting Bob, Mary rolled over $100,000 of her retirement savings into a financial product that promised safety and growth tied to the S&P 500 index. What she didn’t know was that she had just invested in a Fixed Index Annuity—a high-fee, high-commission product that earned Bob over $8,000 in commission.
Her investment grew, but not as much as the S&P 500. Worse, she later discovered she’d have to pay a 7% surrender fee for the first 7 years to withdraw her money. At the end of 10 years, she had $149,000. But what if she had simply invested in a low-cost S&P 500 index fund?
The Cost of the Wrong Investment Choice
Had Mary invested $100,000 in 2013 in a low-cost S&P 500 index fund, such as:
Vanguard VFIAX (0.04% annual fee) or
Fidelity FXAIX (0.015% annual fee),
She would have had $370,101 by 2023.
From 2013 to 2023, the S&P 500 had an annualized return (with dividends reinvested) of 11.68%. Instead, Mary’s annuity investment resulted in $221,000 in lost growth due to fees and restrictions.
The Hidden Costs of Fixed Index Annuities
A Fixed Index Annuity comes with a Rate Cap and Annual Fees:
Mary’s Annual Rate Cap was 7%—meaning that even if the S&P 500 returned 11%, she only earned 7% max.
She also paid 3% in annual fees.
The most she could earn in a year was 4%, not 7%.
The Reality of Market Fluctuations
Mary was afraid of losing her $100,000, and Bob exploited that fear. But the truth is:
The S&P 500 does go up and down—for example, it lost 18% in 2022 but gained over 19% in 2023.
However, in any 10-year period in history, the S&P 500 has never lost money.
Even after 9/11, when the market plunged 11%, it recovered within a month.
I shared the chart below with Mary to show her how the S&P had gone up and down from year to year, but over the last ten years has only gone up. The key is to have a long term view and not invest money that you will need in a few years.
Mary realized that the “guarantee not to lose her initial investment” was in actuality not really worth much if she didn’t need her money for 10 years. It certainly wasn’t worth the $221,000 in fees and lost investment.
What Mary Did Next
Fortunately, Mary had not annuitized her Fixed Index Annuity—meaning she hadn’t locked herself into a lifetime payout. Instead, she was able to roll her money into an IRA invested in a low-cost S&P 500 fund. Since she had held her annuity for over seven years, she avoided the surrender fee.
How to Identify If You Have an Annuity
Most women I’ve worked with didn’t know they had an annuity. Here are some red flags:
Your investments are with an insurance company such as:
New York Life
MetLife
AXA/Equitable
Your account has terms like “surrender fee” or “contract”.
Your financial planner used phrases like “guaranteed income for life”, “you can’t lose money”, or “guaranteed returns”.
How to Get Out of an Annuity
1. Exiting an Annuity in a 403(b):
403bwise.org offers step-by-step guidance on how to get out of a bad 403(b) annuity.
2. Transferring a Tax-Deferred Annuity to an IRA:
3. Moving a Non-Qualified (after-tax) Annuity to a Brokerage Account:
Consult a fee-only fiduciary financial planner to understand the tax implications and costs.
NOT FINANCIAL ADVICE
The information contained in this article is for informational purposes only and shall not be understood or construed as financial advice. I am not an attorney, accountant, or financial advisor, nor am I holding myself out to be. I do not accept any fees or commissions from anyone or any financial institution.
I’d love any feedback on these articles.
