The little-known brother to the Hogwarts sorting hat, worn by each student at the end of the year to determine their grades. Alas, we’re just kidding. This actually involves annuities.
An annuity is an investment that pays a certain amount each year over a period of time. They come in a lot of varieties, each with its own provisions. One form of annuity is the indexed annuity, which ties returns for its principal to a certain stock index...the S&P 500 or the Dow Industrial Average, for example.To protect the investment, the annuity might guarantee a certain minimum growth rate, which comes regardless of what the index does. However, to allow the company to earn some profits somewhere, the annuity might also have a have a maximum growth rate. This is the annual crediting cap.
The benefit of these annuities to the customer is that they are safe...there is at least a minimum guaranteed growth rate. But the customer buys that safety by giving up the chance for big growth in years when the stock market performs extraordinarily well. The downside and upside are both capped.Related or Semi-related Video
Finance: What is the Wilshire 5000?9 Views
finance a la shmoop what is the Wilshire 5000 well it's an index as in index fund
ticker W 5000 well the Wilshire 5000 had the top 5,000 most highly valued US [List of all the stocks in the Wilshire 5000]
stocks in it when it launched you know by the late 90s the index had added
another about 25 hundred names but it didn't change its name to Wilshire 7500 [Wilshire 7500 is crossed out and changed back to 5000]
and it changed names as companies split and spun off and as the internet IPO [Companies dividing into two]
boom forced a whole load of adds to the index there well then guess what a whole [Stocks flooding into the Wilshire 5000]
bunch of bankruptcies in the dot-com era came along you know along with mergers
and other financial dietary restrictions and they caused the size of the index to
fall to the you know 3,700 names zone where it sits today the Wilshire 5000 [Number of names in the index shrinking]
and yeah we don't know why then I'll just rename it the Wilshire 3,700 ish [Guy changing the sign as 3700ish appears and replaces the 5000]
either well its distinguished from say the S&P 500 in that it covers a much [The S&P 500 is moved away]
broader range of securities from mega cap companies like Apple all the way
down to companies with just a few hundred million bucks in market cap so [Examples of the smaller cap companies are highlighted]
when investors want to think about all stocks or at least the broadest swath of
them they think Wilshire and then a number but they think Wilshire anyway
and well we could give you roughly thirty seven hundred reasons why [Lady Gaga on stage]
Up Next
Technically, an annuity is any kind of regularly scheduled payment, usually made annually, quarterly or monthly...for the life of the recipient. Ev...
What is the Dow Jones Industrial Average? The Dow Jones Industrial Average is usually just called the Dow. It’s an average of 30 of the most well...
What is the difference between mutual funds and index funds? Mutual funds are professionally managed. Those investors trade shares and realize taxa...
What is the Relative Strength Index? The Relative Strength Index is a technical analysis indicator that measures trading direction trends over the...