Why Smooth and Steady Wins the Race: The Hidden Power of Protected Growth
A question I hear often — especially from women who’ve saved diligently but feel uneasy about market risk:
👉 “How do I invest without losing everything if the market crashes?”
That’s where stories help. Meet Christine. She’s not a real client, but she represents so many women I speak with.
Christine’s Dilemma
- In 2000, Christine inherited $100,000.
- She wanted to honor her grandmother’s legacy by investing it wisely — not chasing returns, but finding security and peace of mind.
- Her advisor suggested the S&P 500. “Just let it ride,” he said.
But what Christine didn’t realize — and what many overlook — is how bumpy the ride can be … and how much taxes + volatility eat away at growth.
Let’s compare two paths Christine could have taken:
If Christine had invested $100,000 in a traditional brokerage account tied to the S&P 500 (price only, no dividends):
She would have faced:
Three years of losses right away (2000–2002)
A steep crash in 2008
Another harsh drop in 2022
With recoveries in between, if she stayed the course
By 2024:
- Her account could have reached ~$370,049 (best-case, no taxes, no withdrawals).
- But in reality, annual taxes on gains drag balances down.
The Hidden Drag: How Taxes Reduce a Taxable Account’s Growth
In a regular brokerage account, the IRS takes a slice in good years. Even if Christine reinvests everything, she still owes tax that year. To keep the math simple, this illustration applies a 20% tax to each positive year’s gain (a middle-of-the-road estimate).
What gets taxed each year
- Interest & non-qualified dividends: taxed at ordinary income rates the year they’re paid.
- Qualified dividends & long-term capital gains: generally taxed at 0% / 15% / 20% depending on income; we use 20% here for simplicity.
- Fund/ETF capital-gain distributions: taxable the year they’re distributed even if reinvested.
- Selling at a profit: creates a capital gain (short-term gains are taxed like ordinary income; long-term at the lower rates above).
- Loss years: no tax is owed, but the account still falls by the full market decline. (We didn’t assume active tax-loss harvesting.)
How we apply it in the chart below:
- Market +10% → after-tax credit +8% (10% × 80%).
Market –13% → after-tax credit –13% (no tax on losses).
Bottom line: compounding after that annual tax drag from 2000–2024 leaves the after-tax market balance around $228,509, far below the pre-tax market line.
Path 2: The Fixed Indexed Annuity — A Smoother, Protected Ride
Now imagine Christine placed that same $100,000 into a Fixed Indexed Annuity (FIA):
- Linked to the S&P 500 (calendar year basis)
- 9% cap on gains
- 0% floor in losses (never loses in down years)
- Gains locked in annually
- Tax-deferred growth (no annual tax drag)
What happened?
- In bad years (2000, 2001, 2008, 2022) → Balance stayed steady.
- In great years (2003, 2013, 2021) → Captured the 9% cap.
- Over time, tax deferral created a snowball effect.
👉 By 2024, her FIA was worth about $432,765.
This scenario is a hypothetical backtest and does not reflect any specific product or guarantee future results. Fixed Indexed Annuities do not directly invest in the stock market. Rates, caps, and floors vary by contract and issuing company. Guarantees are backed by the financial strength and claims-paying ability of the insurer. After tax line assumes a 20% annual tax on gains; losses are untaxed and reduce the balance at the full market rate.
😴 Which Path Brings More Peace of Mind?
- The market had strong growth … but also gut-wrenching downturns.
- The FIA delivered steadier growth, avoided losses, and ended with a higher balance.
👉 End result: More money. Less stress. Better sleep.
This scenario is a hypothetical backtest and does not reflect any specific product or guarantee future results. Fixed Indexed Annuities do not directly invest in the stock market. Rates, caps, and floors vary by contract and issuing company. Guarantees are backed by the financial strength and claims-paying ability of the insurer. After tax line assumes a 20% annual tax on gains; losses are untaxed and reduce the balance at the full market rate.
For Christine, this is the “sleep-well” piece of her plan. With a fixed indexed annuity, her principal can’t drop in down markets, gains lock in each year, growth is tax-deferred, and later she can turn it into protected income for life that may step up after good index years (up to the cap).
In the chart below, you’ll also see the trade-offs we never gloss over: annual gains are capped (e.g., 9%), access can be limited by surrender periods, there’s no direct stock ownership, guarantees are not FDIC-insured (they depend on the insurer’s claims-paying ability), and these contracts are complex and not right for every dollar. That’s why we often pair an FIA for safety with market assets for uncapped growth—so Christine gets steadier sleep without giving up all the upside.
✅ Pros and ❌ Considerations of a Fixed Indexed Annuity
What Experts Say About Protected Income
Most women will outlive their spouse. The last 8–12 years of life are often spent alone in retirement.
When a spouse passes, here’s what usually happens:
- ❌ One Social Security check disappears
- ❌ Taxes often go up (filing as Single instead of Married Filing Jointly)
- ❌ Many fixed expenses remain the same
👉 Protected income can’t replace a spouse, but it can replace lost income.
‼️ A Note to Men: Why You Need to Plan Now
Gentlemen, this is where you come in. Statistically, your wife will live longer than you. When that day comes, she’ll not only face grief — she’ll also face less income and higher taxes.
Planning now isn’t just financial. It’s an act of love. By making sure she has guaranteed, protected income in place, you’re giving her stability, dignity, and peace of mind during what will be one of the hardest chapters of her life.
Why This Matters for Women
When income drops and taxes rise after a spouse passes, the math gets harder just as life gets heavier. That’s why many women tell us they want a stable, predictable check they can count on—so the essentials are covered no matter what the market or life brings.
How protected income helps:
- Covers the “must-haves.” Housing, healthcare, groceries, utilities—paid first, every month, for life.
- Reduces stress in down markets. Income doesn’t fall when stocks do, lowering sequence-of-returns risk in retirement.
Lets growth be growth. With the essentials protected, market dollars can focus on long-term, uncapped growth.
- Supports tax planning. Tax-deferred buildup and optional strategies can help manage brackets in widowhood.
- Legacy options. Many contracts include a death benefit, so unused value can support loved ones.
A Fixed Indexed Annuity isn’t right for every dollar—and we’ll be transparent about the trade-offs (caps, limited early access, and insurer guarantees). But for someone like Christine who wants steady progress and fewer sleepless nights, it can anchor the “sleep-well” part of the plan while market assets handle the rest.
Curious whether “protected growth” belongs in your plan?
We’d love to explore it with you—no pressure, no assumptions. In a complimentary Financial Clarity Session, we’ll look at your goals, income needs, taxes, and risk comfort, then walk through options together—market strategies and protection tools alike. If a fixed indexed annuity fits, we’ll explain why; if it doesn’t, we’ll say that too. Our promise is clarity so you can decide with confidence.
The commentary on this blog post reflects the personal opinions, viewpoints and analyses of the author, Veronica Aguilera, and should not be regarded as a description of advisory services provided by Foundations Investment Advisors, LLC (“Foundations”), or performance returns of any Foundations client. The views reflected in the commentary are subject to change at any time without notice. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security, or any security. Foundations manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Foundations deems reliable any statistical data or information obtained from or prepared by third party
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