“Rule No. 1: Never lose money. Rule No. 2: Never forget rule No. 1.”
– Warren Buffett
Since the war in Iran broke out, stocks have headed south, and no one is sure when it will end. That always makes investors nervous.
I know we are told to “buy and hold,” and most of the time, it pays to be patient. J. Paul Getty advises, “The seasoned investor buys his stocks when they are priced low, holds them for the long-pull rise and takes in-between dips and slumps in his stride” (The Maxims of Wall Street, Page 136).
But as Steve Forbes observes, “Everyone is a disciplined, long-term investor… until the market goes down” (Page 135).
And as technical trader Mike Turner warns, “Nothing is more difficult than holding on to your stocks in a bear market” (Page 109).
Is there a way to protect yourself, following Warren Buffett’s rule of “never losing money”?
Buffett’s rule is easier said than done. His own investment firm, Berkshire Hathaway, has lost money in bear markets over the years – as much as 40%! But if you held on, you became a millionaire.
I have on my shelf a book entitled Wealth Without Risk, written by the late Charles Givens. Is “wealth without risk” possible?
The Danger of Market Timing
Certainly you can buy put options to protect yourself without selling your favorite stocks, but then you have to decide when to sell your put option position. Study after study shows that it’s almost impossible to decide when to buy and when to sell.
DALBAR’s 2017 “Quantitative Analysis of Investor Behavior” concludes, “Investors lack the patience and long-term vision to stay invested in any one fund for much more than four years. Jumping into and out of investments every few years [or every month!] is not a prudent strategy because investors are simply unable to correctly time when to make such moves.”
Conservative investors and retirees have always dreamed of an investment that could make money during the good times and avoid losing big money during the bear markets, like what we are experiencing now.
I have good news! There is such an investment. No, I’m not talking about market timers who promise to make you money in bull markets while always avoiding the bear market through “guaranteed” technical trading systems.
High-frequency trading is no guarantee of success during a bear market. These systems often result in getting whipsawed in and out of markets.
I’m talking about a product offered by the major insurance companies: stock-indexed annuities.
Stock-Indexed Annuities to the Rescue
These annuities are not for everyone, but they may be a good alternative for conservative investors who can’t stomach a crash or bear market.
My wife bought stock-indexed annuities right before the 2008 financial crisis and more than doubled her money.
The annuity was with Midland Life and had a 40% participation rate in the stock market, which allowed her to earn a decent return from the stock market with no downside risk. From 2000 to 2025, there were four major bear markets, and owners of the annuity avoided all four.
Now that’s what I call “peace of mind” investing.
Stock-indexed annuities are issued by insurance companies. They guarantee your principal every year. If the market drops 30%, you lose nothing.
These annuities take all the guesswork out of investing. If the stock market goes up one year, you make money. If it crashes the next year, you don’t lose money. Your principal is intact – at the higher level!
What’s the Catch?
In most cases, the contract limits your upside when stocks go up. For example, Cincinnati-based Mass Mutual has a new index annuity called the American Legend 7 that allows you to earn up to 9% a year in the S&P 500 index. That means that if the stock market goes up 30%, you make only 9%. But if stocks drop, you lose nothing.
It also offers you the chance to invest in gold with an annual limit of 12% on the leading gold ETF, SPDR Gold Shares (NYSE: GLD), and no downside risk. But if gold goes up 50%, you only make 12%.
How do insurance companies offer this guarantee without losing money? Traditionally, they hedge their positions by purchasing 70% to 80% in high-grade bonds and government securities and then invest 20% to 30% in stock index call options or gold futures options.
Financial experts have criticized annuities for being too expensive with hidden fees, which is something you need to watch out for. The Mass Mutual annuity charges 1.2% a year. It also has a built-in surrender charge that gradually declines from 9% to 0% in seven years.
The annuity also offers a death benefit and a fixed income annuity feature.
What is the real risk? There’s only one: You want to make sure you buy an index annuity with an insurance company that will stay in business. Index annuities are not insured by the government like your bank account is. If the insurance company goes under, you could lose your investment.
The key is to stay with top insurance companies rated A or better by AM Best or Standard & Poor’s. MassMutual is rated A++ by AM Best and AA+ by Standard & Poor’s.
If you are 85 years old or younger, you qualify for the American Legend 7. Stock index annuities are not for everyone, but they may be suitable for part of your portfolio.
For more information, contact Todd Phillips, the president of Estate Planning Specialists, Inc., in Gilbert, Arizona, at 888.892.1102 or email him at todd@epmez.com. You can also visit Estate Planning Specialists’ website: www.epmez.com.
I’ve known Todd and his father, David T. Phillips, for decades. They are reliable experts in all fields of insurance and estate planning.
The Calming Influence of the Bible of Wall Street!
During times of crisis, religious people turn to the Bible for comfort.
Where do investors turn for comfort during a financial crisis? Many subscribers are turning to my classic bestseller, The Maxims of Wall Street: A Compendium of Financial Adages, Ancient Proverbs, and Worldly Wisdom.
It even has quotes from the Bible!
Yours truly and a subscriber cruising with The Maxims of Wall Street.
Demand for my book has been especially strong with the market turning south. It’s now in its 12th edition. I’ve received several letters from investors lately who say that reading quotations from Maxims has been comforting in these trying times when the market is struggling. I’ve been around the markets since the 1970s and have endured many crashes and busts. It never gets easy.
Warren Buffett recently wrote, “The stock market can go from green to red without stopping at yellow” (see Page 111 of Maxims). He’s a big fan of my book.
And consider this quote from Wendell Brock: “Nothing can make the spirit fly higher than finding a bargain when you’re the buyer. And nothing can make the spirit sink deeper than finding it later a whole lot cheaper” (Page 34).
J. Paul Getty advised, “Owners of sound securities should never panic” (Page 111).
This quote comes from Oxford Club Chief Investment Strategist Alexander Green on why you should stay invested for the long run: “It’s tough to catch the train after it has left the station” (Page 177). He considers my book a “classic.”
And last but not least, there’s Dick Russell’s famous line, “In a bear market, the winner is he who loses the least” (Page 108).
If you want a copy of the new 12th edition, go here. The price is only $22 for the first copy and $12 for all additional copies (they make great gifts). If you buy a box of 32 copies, the price is only $337, which is just $10.50 apiece. I sign all books and mail them at no extra charge inside the U.S.
Economist and financial analyst Dennis Gartman says it best: “It’s amazing the wisdom one can gain from just one line in your book. I read it every day.”