Volatility is an investment term that describes when a market or security experiences periods of unpredictable, and sometimes sharp, price movements. When investors are prepared at the outset for episodes of volatility on their investing journey, they are less likely to be surprised when they happen, and more likely to react rationally. By having the mindset that accepts volatility as an integral part of investing, investors can prepare themselves and remain focused on their long-term investment goals.

Registered Index-Linked Annuity

A Registered Index-Linked Annuity (RILA) is a tax-deferred long-term savings product that provides the opportunity for growth and limits exposure to downside risk. Returns are based in part on the performance of an underlying index or indexes, but a RILA is not a stock market investment and does not directly participate in any stock or equity investments. It is a hybrid retirement product offering market-linked growth with downside protection, balancing potential gains with limits on losses, making it a middle ground between fixed and variable annuities, often called buffered or structured annuities. Returns are tied to an index like the S&P 500, but losses are limited by buffers or floors, allowing for upside participation with defined risk.

"A tolerance for short-term swings improves our long-term prospects. In baseball lingo, our performance yardstick is slugging percentage, not batting average."

Warren Buffett

Growth Potential

When the Registered Index-Linked Annuity experiences positive performance at the end of the strategy term, crediting may be determined based on a cap rate, participation rate or trigger rate. A cap rate is a limit on how much the contract value can grow during each strategy term. Interest crediting will be equal to the index strategy return up to and including the cap. You will not receive credit for any index gains above the cap rate. Cap rates will vary based on the index, strategy term, and protection option chosen. Some strategies may use a participation pate or trigger rate. Participation rate is a percentage of the positive index return that is credited for the strategy term. A trigger rate is the rate that is credited for any trigger strategy, if the parameters for that strategy are met. Terms are usually offered in 1,3, and 6 years.

Protecting Against Losses

In a RILA, a buffer is a feature that absorbs a portion of market losses, protecting your investment from minor downturns by letting the insurer cover a set percentage (e.g., 10%) of losses before you're affected. For example, with a 10% buffer, a 15% index drop results in only a 5% loss for you, as the insurer absorbs the first 10%. With a 20% buffer, a 15% index drop results in the carrier absorbing the whole loss. It acts like a shock absorber, limiting downside risk while still allowing for growth linked to an index.