Retirement Weekly: How to invest in the stock market and never lose money—Part II

by | Mar 3, 2023 | Stock Market

Fixed index annuities are not the only way you can invest in the stock market and be assured of not losing money over the short term. That’s because there’s a do-it-yourself alternative that avoids the high commissions associated with fixed index annuities (FIA). And it’s not particularly onerous.

I’m focusing on this do-it-yourself alternative as a follow-up to last week’s column on strategies for immunizing your equity portfolio from losses. As you may recall, in that column I mentioned a specific FIA that, in addition to guaranteeing that you will not lose money over a 12-month period, pays you 55% of the stock market’s gain when it rises. In return, you forfeit all dividends as well as 45% of the stock market’s gain. Several readers emailed me to say they didn’t think this was a good deal. They argued that giving up nearly half the stock market’s upside and all dividends is too high a price for not losing money over any 12-month period. My response to these readers: It is possible to secure a higher participation rate by investing the bulk of your equity portfolio in bonds and using the small remainder to purchase in-the-money index call options that expire at the same time the bonds mature. You are guaranteed not to lose money over the period between when you initiate the trade and the date on which the bonds mature and options expire. To appreciate the promise of this approach, co …

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