min read
Braden Mosley

Surviving the next Great Depression with Annuities

In last week’s newsletter, we learned that annuities protect the value of your nest egg in a market downturn.

They also may be one of the only ways to guarantee your nest egg is safe in a major recession.

Today, you’ll learn:

  1. How the crash of 1929 started the Great Depression
  2. How the Silicon Valley Bank scare in 2023 could have been much worse
  3. How an annuity may help you sleep easier at night in a volatile American economy.

1918: World War 1 was finally over.

TheWeek.com | “How did World War 1 end?”

Anyone who’s seen Great Gatsby has romanticized the roaring 20s that followed.

Also known as the Jazz Age, the decade of the 1920s featured economic prosperity and carefree living

But with high highs come low lows.

The decade began with a roar and ended with the worst market crash we’d ever seen.

In the shadows of the 20s, America experienced:

  • overinflated shares
  • growing bank loans
  • agricultural overproduction
  • negative media competition

When people started pulling their money out of the bank in 1929, they realized… it wasn’t there!

Banks only held a small amount of their members' money on hand, so when Americans couldn’t withdraw their money…

Nationwide panic ensued.

In the market crash of 1929, over 9,000 banks failed and $7 billion in consumer assets were lost (nearly $300 billion today).

Something had to be fixed.

A few years later the FDIC was created (Federal Deposit Insurance Corporation).

The FDIC’s $250,000 insurance per member paired with the Federal Reserves to prevent massive bank failures.

But, to this day, a market crash could hypothetically cause the whole banking system to fail.

America’s underrated scare in 2023: SVB

You may remember hearing about the Silicon Valley Bank (SVB) collapse in 2023.

CNBC.com | Silicon Valley bank Collapse - How it happened”

In 2020, after the COVID pandemic, SVB had an influx of cash from tech startups.

SVB decided they wanted higher returns on that money, so they invested in long-term assets instead of short-term ones.

When members wanted to pull their money out in 2023, SVB had little on hand.

Luckily, The Federal Reserve and FDIC stepped in fast enough to pay back all of SVB’s members (even though 89% of the bank's payouts exceeded the $250,000 maximum insured by the FDIC).

It’s easy to downplay this situation…

But at the time, America’s economy was sitting on the edge of a cliff.

If millionaires across the country began withdrawing their money, the whole system could collapse.

If the government wasn’t prepared to pour $176 billion out to SVB’s members, we could be in another Depression right now.

“So, what do these crashes mean for my retirement?”

Last week, we learned a few ways insurance companies guarantee your nest egg is safe through an annuity.

  1. They often feature a 0% floor interest rate, meaning your returns won't dip below this even in market downturns. However, they also cap gains during market booms.
  2. Annuity companies are mandated to maintain "dollar-for-dollar reserves," unlike banks which typically keep 0-10% reserves. This prevents panic withdrawals (also known as “bank runs”).

So, not only do market crashes teach us that your nest egg could be cut in half in a matter of weeks…

But also, banks may not always be the safest place for your money.

While annuities won’t offer “home run” returns, they will protect your principal (nest egg), and offer reasonable returns, usually around 4-6%.

That’s all for part 2 of the 4-part Annuity series.

Come back next Saturday and I’ll explain the pros and cons of adding an annuity to your portfolio.

That’s all for today.

See you next week!

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