A few months ago, Dateline NBC ran a supposed expose on Indexed Annuities- most of their assertions I find fault with. I decided to sit down and provide a counterpoint view of why indexed-linked products- whether they’re life insurance, annuities, CDs, or corporate notes- have some unique advantages that no other financial product can compete with.

First of all, it’s important to note that the S&P 500 long-term growth averages fail to reach double digit levels. The only reason you see returns of between 11-12% are because of the dividends specific stocks within the index pay out. Without these dividends, the average return on the S&P 500 between the years of 1951 and 2001 (in ten year intervals) was only 9.49%.

The assertion that Dateline NBC and other critics put out there that index-linked products only credit about 60% of the upward movement of the stock market is merely a half-truth. What they’re not telling you is that index-linked products credit interest rates based on only the upward movement of the underlying index with the cap rates configured into the products.

If you’re not familiar with the way indexed-linked products work, you can find some useful information within the archives on my website, twintierfinancial.com. Essentially, every indexed product works the same in that they credit the policy in proportion to the upward only variations of the S&P 500, generally up to a pre-known cap of between 6-8%. Generally, the better the product, the higher the cap will be. Also, the better the product, the less the fees will be associated with it.

Now, let’s revisit the half-truth of the 60% return. The problem herein is that this figure is obtained by figuring in the down years of the index as well. The nature of indexed-linked products is that they treat the naturally occurring downward turns in the stock markets as no growth. In other words, the stock market might lose 5% in one month (quite like this year), but your indexed-linked product will simply credit 0% growth for that month, while still preserving the principal you already have.

By the time you substitute all the downward trending values with zeros, you’ll find that indexed products return a full 30% more than the 60% returns originally claimed by the critics. For well designed indexed products, the long-term honest rate of return is truthfully within the 8-9% range. Considering that the long-term average of the S&P is 9.49%, an 8% return with no downside risk doesn’t seem like a bad prospect at all, right?

Additionally, most indexed-linked products also have a minimum rate of return. In the shaky financial situation that the economy has been experiencing this year, the stock market has already lost 40% of its value from this time last year. However, the people who were secured into indexed-linked products have not only preserved their initial investment and the gains they’ve already secured, but they have also been credited between 1-3% depending on the minimum gains guarantee written into their product. Not too shabby.

David C Lewis, FMM, RFA is the founder of Twin Tier Financial – a financial services company based in upstate NY which specializes in providing information related to finance online, personal financial problems and retirement planning. For more info, please visit http://www.twintierfinancial.com