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 Dow Jones Industria...2710 Views
finance a la shmoop- what is the Dow Jones Industrial Average? well it's just
an index. it's a basket of 30 industrial stocks hence the catchy industrial word [list of the 30 stocks involved in the Dow]
in there and it was started in 1896 by Charles Dow and Edward Jones sort of the
Coke and Pepsi of stock averages in the day .worth noting is the fact that while
the Dow average is quoted often in the press it's not something that real Wall
Street traders really rely on that much as a market place holder anymore. why?
well because the Dow comprises only 30 stocks. it isn't really a broad market [Dow Jones in the trash]
representation, and you know the way the S&P 500 is the 500 is bigger than 30. Big
Brother has way more stocks and is thus way more liquid than the relatively
blippi set of 30 stocks that the Dow offers. over time the Dow has changed as
companies were bought and/or died and or just withered and became no longer
relevant. i.e. newspaper industry. which means that this thing has gone through
more faces than Kanye West .yeah. [Kanye West faces pictured]
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