Annuities typically invest in stocks as a way of gaining a return for investors. However, many people who are interested in investing their money through an annuity might worry about what happens if there is a stock market crash anytime in the near future. Since their funds are invested in stocks, this is a valid concern and they should be aware of what might happen.
What is a Stock Market Crash?
Stocks generally rise and fall throughout the day. Over periods of months and years, the value of a stock can rise and fall, though when it does fall, it’s usually by a small percentage. When stock prices dramatically decline within a few days, it’s considered a stock market crash. Often, a rapid decline is considered a crash when prices drop more than 50%. Most of the time, crashes are caused by investors panicking and selling off stock when the prices dip significantly, leading to further losses. Though the prices can drop significantly, the stocks generally rise again relatively quickly.
Why Do Stock Market Crashes Occur?
Stock market crashes can occur for a variety of different reasons. In 1907, a stock market crash was said to be caused by an earthquake in California. Many stock market crashes come as the result of a bubble. A bubble is a spike in values based on the perceived value of an item, not the actual value. A good example of this was the housing bubble, where prices for homes rose significantly before the value suddenly dropped. It also occurred in the tech world when the internet was just getting started and the perceived value of websites was high.
How Often Does the Stock Market Crash?
Stock market crashes do not occur regularly. They have occurred many times in the past and will occur again. This is mainly because of the panic that can arise when values start dropping after a significant bubble. It is, however, incredibly difficult to predict when a stock market crash might occur. Those who invest in the stocks will want to make sure they choose investment options that provide some protection against a crash, such as an annuity, as there is always a chance another stock market crash will occur. While the market will recover, having a security plan in place helps the person deal with the crash and wait for the markets to fully recover.
What Happens with an Annuity if the Stocks Crash?
An annuity is an option for those who want to make sure they have some security in place to protect their money if a stock market crash occurs. While the market will recover, it can take some time to fully recover. An annuity gives seniors the chance to invest their money so they can have a steady income after their retirement funds are depleted. In the case of a stock market crash, they may lose a portion of their gains from the annuity, but they will not lose all of their money. The original amount they invested is still available and they can use that money to reinvest as the stock market starts to improve.
Though stocks are often volatile and it’s possible for a stock market crash to happen at just about any time, it’s also possible to invest safely and protect the original investment by using an annuity. Speak with a specialist today to learn more about how an annuity can help protect your money.