The One Big, Beautiful Bill Act, the legislative package formalizing most of President Donald Trump's second-term agenda, became law with the president's signature on July 4, 2025.

The bill is not without its controversies, of course. But one provision should be of interest to all current or expecting parents: The establishment of "Trump Accounts," a new type of tax-deferred retirement account for American kids.

The Trump Accounts share some similarities with traditional IRAs and others with 529 college savings accounts. But they also have some quirks that make them unique.

So, should you consider a Trump Account for your children? Let's take a look and compare them to some of the existing options out there.

Only a fool turns down free money

Let's cut to the most important part first. All children born between January 1, 2025, and December 31, 2028, will be eligible for a $1,000 seed payment directly from the U.S. Treasury.

There are no income limitations. The only requirements are that the child is a U.S. citizen with a valid Social Security number and that at least one parent must also have a valid Social Security number.

That's it.

So, if your child was born this year or last or if you have any new children born through 2028, yes, you should open a Trump Account for them. It costs you nothing to claim the $1,000, and there is no downside.

Even if you have no intention of ever adding another nickel to the account, you should open one to claim the payment. Assuming the account grows at the S&P 500's average compound return of around 10%, that $1,000 deposit would be worth over $490,000 by the time your kid hits retirement age.

And parents can contribute up to $5,000 per kid per year into a Trump Account. This figure will be indexed to inflation and will start adjusting in 2028. You can contribute annually up until the year they turn 18. And outside of a few extenuating circumstances, such as death or disability, the IRS stipulates that no withdrawals can be made until your child turns 18.

Once your child is 18, they are eligible to take money out of their Trump Accounts for a handful of qualified withdrawals that include higher education expenses and a first-time home purchase. Other withdrawals made prior to the beneficiary reaching the age 59 ½ will be subject to a 10% early distribution penalty.

As the bill is written now, the proceeds must be invested in certain mutual funds or exchange-traded funds (ETFs) tracking a major index such as the S&P 500. The index funds must have an expense ratio that's less than 0.1%.

It's unclear if Trump Accounts will allow more conservative blended investments in the future, but kids under 18 have the benefit of a longer timeline for investing, which means short-term fluctuations in the stock market will be less impactful on total returns.

As an added quirk, a parent's employer can contribute up to $2,500 of the $5,000 allowed annually, and it will not be counted as income for either the parent or the child. So, we could see Trump Accounts offered on the standard menu of employer benefits alongside 401(k) plans or HSAs in the years ahead.

As for whether the accounts make sense for your children born prior to 2025, that's a more complex answer. Let's dig into that now.

What is a Trump Account for a child born before 2025?

Parents with children born prior to 2025 might want to consider opening a Trump Account for their kids as well. While not eligible for the $1,000 seed payments, a $6.25 billion donation from Michael and Susan Dell will seed Trump Accounts for some kids 10 and under who were born prior to January 1, 2025.

The donation will provide an initial investment of $250 for 25 million children who live in zip codes with a median income of $150,000 or less. You can check your child's eligibility at TrumpAccountInfo.com.

Several other private donors, including Ray and Barbara Dalio, are making donations for seed money for children in certain areas. The Dalios, for instance, have pledged $250 to each eligible child under the age of 10 in Connecticut.

Though Trump Accounts are expected to look and feel like a traditional IRA account, there are a couple of important differences.

Trump Accounts vs traditional IRAs

To start, unlike IRAs, Trump Accounts have no earned income requirement. That's a key distinction. In order to invest in an IRA, your child would have to have earned income from work, even if it is something informal like mowing lawns or babysitting. A newborn infant obviously can't work, so your ability to fund an IRA for a young child is limited.

Unlike IRAs, contributions to a Trump Account are not tax-deductible. You get no tax break for contributing, though if your employer contributes, that is not counted as taxable income. And earnings from your child's investment account grow tax-free.

And similar to IRA distributions, it's expected that distributions from Trump Accounts will be taxed as ordinary income.

Trump Accounts vs other savings accounts

There are a few things to note.

Trump Accounts are not college savings accounts. If you're looking to specifically save for college, then a 529 plan is going to be better tailored to that purpose.

Maxing out your own 401(k) or IRA should also take precedence. It's great to give your kid a head start in life if you have the financial flexibility to do it. But it doesn't make sense to set your son or daughter on the path to early retirement until you've adequately provided for your own golden years.

If your child has earned income, then contributing to a Roth IRA is going to be a better option. The Roth IRA contribution limits are higher ($7,500 in 2026) and withdrawals in retirement are completely tax-free.

Finally, the core benefit of the Trump Account — tax-free compounding of returns — is already available in a regular everyday brokerage account. Simply buying and holding an S&P 500 index fund will allow your investment to compound without any taxable gains other than minuscule taxes on dividends paid, and you maintain the flexibility to take the funds out early if you need them.

Should you get a Trump Account for your child?

So, let's return to our original question: Should you consider a Trump Account for your child?

Under the right circumstances, absolutely.

If your child qualifies for the financial gift from Uncle Sam, you should at a bare minimum open an account to take advantage of it.

Beyond that, you should take care of your own retirement planning and your kid's college education planning first. But if you have those largely covered, then adding a Trump Account to the mix can't hurt.

Your son or daughter will thank you when they turn 18.

How can I sign my child up for a Trump Account?

To sign your child up for a Trump Account, you'll need to sign into your IRS account and fill out Form 4547. You'll need your ID.me account, your social security number and your child's social security number.

You can then download the recently launched Trump Accounts app to create an account on the Apple App Store and Google Play.

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The historically worst month of the year for the stock market is very much living up to its billing. 

True, September has never been kind to the S&P 500 – since 1928, it has delivered an average decline in price of 1.0% – but this time around has been a doozy. From the Aug. 31 close through Sept. 27, the most widely used proxy for U.S. equity performance shed 7.8% of its value. 

If that weren't painful enough, the blue-chip Dow Jones Industrial Average finally entered bear-market territory in late September, joining the S&P 500 and Nasdaq Composite in a decline of at least 20% from its peak. Unabated hawkishness on the part of global central banks was the proximate cause for the blue-chip barometer finally succumbing to the dreaded bear. 

With the three major equity benchmarks in bear markets – and just three months left in the calendar year for the stock market to recoup at least some of its deep 2022 losses – it seemed like a good time to check in with the pros on what's next for stocks. 

Below please find a smattering of select commentary (sometimes edited for brevity) from investment strategists and the like on the state of markets and what investors can do to position themselves for whatever comes next.

• "The financial markets have struggled with a variety of challenges this year, including inflation, interest rates, slowing economic growth, technical hurdles and geopolitical tensions. We believe corporate profits are the next risk for investors. Companies will begin reporting profits within the next few weeks and the S&P 500 index is projected to grow earnings per share (EPS) by 3.2% in the third quarter, according to FactSet. Challenges to margins include inflation, rising interest rates, increased commodity costs, dollar strength, debt servicing, and supply chain disruption, along with weakening global economic activity. The 'double bottom' is now looming as the equity market tests its June lows. If the 3,640 level for the S&P 500 fails to hold, we look for the 3,500 range to act as the next level of technical support, as it represents the 50.0% retracement of the Index’s March 2020 lows (~2200) and the January 2022 high (~4800)." – John Lynch, chief investment strategist at Comerica Wealth Management
• "As the Fed aims to tame inflation without sending the U.S. economy into a deep recession, equity investors are grappling with their own balancing act ― how to factor competing risks into their portfolios. We believe the answer is to own both growth and value stocks. Value stocks have a history of outperforming growth amid high (4.5% and above) and even moderate (1.1%-4.4%) inflation, based on our analysis of data back to 1927. We see inflation contracting slowly and settling above the roughly 2% level seen in the prior 10 years, a still supportive backdrop for value. Meanwhile, recession is a growing risk as the Fed remains laser focused on combating inflation through higher rates, which crimp economic growth. In this scenario, growth stocks typically have a performance edge given their potential to outpace the slow-growing macro environment. Without making a call for one style over the other, we do see a compelling case for a combination of the two. Be choosy; choose quality. Businesses, whether priced as value or growth, will weather this chapter in history with varying degrees of success. This reinforces the need for selectivity and further argues for a focus on companies with quality characteristics ― particularly strong balance sheets and healthy free cash flow to offer a buffer in the case of a slowdown or profit squeeze. Quality stocks continue to be priced at a discount to the market and, we believe, have potential to outperform as investors look to enhance portfolio resilience amid the prevailing uncertainty." – Tony DeSpirito, chief investment officer of U.S. Fundamental Active Equity at BlackRock
• "The S&P 500 experienced an earnings recession in each of the periods following a 3-month/10-year yield curve inversion, yet analysts expect earnings to continue growing. Perhaps this time is different. It is possible that the Fed will tighten just enough so that inflation subsides as demand cools and hopefully supply chains continue to untangle without triggering a proper recession. Unfortunately, recent history has more examples of the Fed overtightening than precisely slowing the economy while avoiding recession. We have already experienced a -24% peak to trough drawdown in 2022 and the price/earnings multiple for the S&P 500 compressed from over 21x to approximately 17.5x. Some would argue that much of the recession risk is priced in. However, the entirety of the repricing was multiple compression and does not account for a potential decline in earnings which remains the key risk as the economy slows." – Carl Ludwigson, managing director at Bel Air Investment Advisors

• "The Good: Should inflation begin to recede significantly around year-end due to a softer labor market and easing housing inflation that is driving the Consumer Price Index (CPI) in many countries, markets may rebound on prospects for an end to the aggressive rate hikes of 2022. The Bad: Even if excess inflation begins to ease significantly, there is a chance it may soon return. Stocks may rebound as more central banks signal an end to hikes in the coming months, but that may reverse if it becomes apparent inflation is reviving and policy rates would need to be hiked again. This whipsawing pattern may support a continued environment of volatility and wide market swings as seen this year. The Ugly: Alternatively, we could take central bank leaders at their word and pledge to hike rates until the global real rate is restrictive enough to ensure inflation is dead. If they persevere, the economy and stocks may face another year like 2022. Stocks would have further to fall with both price-to-earnings (PE) ratios and earnings contributing to declines; any prospect of a deep recession would likely force analysts to cut earnings estimates." – Jeffrey Kleintop, chief global investment strategist at Charles Schwab
• "More of the same – further dollar strength and the ongoing move higher in Treasury yields are continuing to weigh on risk appetite. We believe it will be very hard for equities to find their footing as long as these headwinds remain in place. That being said, the McClellan Oscillator [a technical indicator] just hit -421, the most negative it has been since March 12th, 2020, suggesting stocks are very oversold from a short-term perspective. Therefore, it would not be a surprise to see a near-term bounce before the downtrend resumes. History says the end of bear markets do not occur until the equity risk premium basis points relative to where it was when the stock market peaked widens by 425. There is more work to do. – David Rosenberg, founder and president of Rosenberg Research
• "Bond investors should maintain below-benchmark portfolio duration and position in Treasury curve flatteners. We also advocate an underweight allocation to spread product versus Treasuries, though we see some near-term value in junk spreads for a tactical trade." – BCA Research 

In the middle of 2020, DF Dent Midcap Growth (DFDMX) was one of the best-performing diversified U.S. stock funds in the Kiplinger 25. Back then, its 12-month return handily beat the broad market, as measured by the S&P 500. The fund held up even better than the index in the pandemic-driven bear market.

But over the past 12 months, the 20.8% gain in DF Dent Midcap Growth, although solid, trailed 84% of its peers (funds that invest in midsize, growing companies). It lagged the S&P 500, too, as well as its benchmark, the Russell Mid Cap Growth Index. The fund favors high-quality, growing companies, but in late 2020, investors began to favor low-quality firms trading at bargain prices.

DF Dent Midcap Growth's limited exposure to tech stocks relative to its benchmark was also an issue. The fund tends to hold roughly one-fourth of its assets in tech stocks; the tech-stock weighting in the Russell Mid Cap Growth Index topped 40% at its peak.

"While our tech stocks have done very well over the past three years, we have been trimming our positions due to higher valuations. We think that is prudent risk management," says fund comanager Bruce Kennedy. The fund managers pared stakes in software firms Ansys (ANSS) and BlackLine (BL), among others.

Kennedy and comanagers Matthew Dent, Gary Mitchell and Thomas O'Neil work to find 30 to 40 growing midsize businesses that generate large amounts of cash, dominate a niche in their industry, and have talented and ethical executives. They wait for a stock to trade at the right price relative to its expected risk-adjusted return before buying. Among the fund's top holdings are real estate investment trust SBA Communications (SBAC) and Vulcan Materials (VMC), which makes construction products such as crushed stone.

Over longer stretches, this process has delivered consistent, market-beating returns. In each of the past three-, five- and 10-year periods, for instance, DF Dent Midcap Growth has posted annualized returns that outpace the typical mid-cap growth fund, the Russell Mid Cap Index and the S&P 500. That's a compelling sign that the fund will soon shine again.

Index funds, which are designed to mimic the ups and downs of a specific index, from the S&P 500 Index to the Barclays Capital California Municipal Bond Index, have become a runaway success. Index investing was introduced to the public with mutual funds in the 1970s. The strategy got a big boost in the 1990s with the rise of exchange-traded funds (ETFs), which can be bought and sold like shares of stock.

It wasn't until the turn of the millennium, however, that index funds really caught on. Between 2010 and 2020, they grew from 19% of the total fund market to 40%, and two years ago, the total assets invested in U.S. stock index funds surpassed the assets of funds actively managed by human beings. The 13 largest stock funds all track indexes.

No wonder: Compared with managed funds, index funds offer better average returns, in large part because their expenses are lower. According to fund-tracker Morningstar, the 10-year return of Vanguard S&P 500 (VOO), an ETF linked to the most popular benchmark and carrying an expense ratio of just 0.03%, exceeded the return of 87% of its 809 peers in the large-cap blend category. The index has beaten a majority of those peers in every single one of the past 10 calendar years.

Also, because only a few of their constituent stocks change each year (the annual turnover rate for the Vanguard fund is just 4%), index funds incur minimal capital gains tax liabilities. (Returns and other data are as of Aug. 6; index funds I recommend are in bold.)

Specialized index funds – ETFs such as the iShares MSCI Brazil (EWZ) or the TIAA-CREF Small-Cap Blend Index (TRHBX) – are straightforward. They let you own a country, region, investing style or industry without having to choose individual stocks or bonds. But what if you want to own the market as a whole, or a big chunk of it? The choices can be overwhelming – and not necessarily what they seem.

Begin with the S&P 500, consisting of roughly the 500 largest U.S. companies by market capitalization (number of shares outstanding times price). Like most indexes, the S&P 500 is weighted by capitalization: The bigger the market cap a company has, the more its influence on the performance of the index. Apple (AAPL), for instance, has about 60 times the impact of General Mills (GIS).

Any cap-weighted index fund is a heavy bet on larger companies. Lately, that bet has become extremely heavy because a few stocks have become gigantic. In 2011, for example, the total market cap of the 10 biggest S&P 500 stocks was $2.4 trillion. Currently, it’s $13.7 trillion. Apple itself has a cap as large today as all 10 of the largest S&P stocks combined a decade ago.

Or consider simply the five trillionaire stocks I highlighted recently. All by themselves, Alphabet (GOOGL), Amazon.com (AMZN), Apple, Facebook (FB) and Microsoft (MSFT) represent 22% of the value of the S&P 500. In recent years, those stocks have been on a tear, and the index has benefited.

Targeted Bet

You may think you are getting broad diversification by buying an S&P 500 Index fund, but you are actually making a substantial wager on a handful of stocks in the same sector. As of July 31, infor­mation technology, Apple's category, and communications services, the sector of Facebook and Alphabet, Google's parent, represent a whopping 39% of the S&P 500. By contrast, energy represents just 2.6%.

Most of the other popular broad indexes are similarly top-heavy and focused on technology. Consider the MSCI U.S. Broad Market Index and other gauges that measure all, or nearly all, of the approximately 4,000 stocks listed on U.S. exchanges.

The five trillionaire stocks represent about 18% of the asset value of Vanguard Total Stock Market (VTI), the most popular of the ETFs based on such indexes; that's only a few percentage points less than the trillionaires' weight in the S&P 500. The iShares Russell 1000 (IWB) is an ETF whose portfolio is based on an index of the 1,000 largest stocks. It has about 20% of its assets in the trillionaires; 36% in tech and communications.

I still like the trillionaires, and I like technology, but I have decided no longer to deceive myself by thinking that most index funds tracking the S&P 500 are the best way to own the U.S. market.

Most advisers – me included – urge a balanced approach. For example, I have a personal program of putting the same amount of money every month into each of the dozen or so diversified stocks I own. Then, I rebalance at the end of each year by buying and selling so that each stock is valued roughly the same. Such a strategy makes sense for investing in the broad market as well, but most of the popular index funds don't provide it.

Also, although technology is hot now, sector weightings shift back and forth over time. Don't you want your portfolio tilted toward sectors and stocks that are out of favor?

Between 2014 and 2020, technology ranked in the top four of 11 sectors in all but one year, and it ranked number one in three years. By contrast, energy has ranked last in five of the past seven years, and consumer staples stocks such as Procter & Gamble (PG) have finished in the bottom half of the sector rankings for five years in a row. When you buy the S&P 500, you get a lot of tech but little energy and consumer staples – which is the opposite of what bargain-hunting investors want.

The Equal-Weight Solution

There are, however, ways to avoid loading up on a few stocks, or any one sector.

One is the S&P 500 Equal Weight Index. Each stock represents roughly 0.2% of total assets (there are actually 505 stocks in the S&P 500 Index), with rebalancing at the end of each quarter. As a result, every time the index is rebalanced, the trillionaires account for about 1% of assets; technology and communi­cations, 20%. Over the past 10 years, the S&P 500 has beaten its equally weighted cousin by about one percentage point, annualized, but that's hardly unexpected in a great decade for big growth stocks.

Invesco S&P 500 Equal Weight (RSP), an ETF with an expense ratio of 0.2%, offers an easy way to buy the index. Be warned that its turnover, at 24%, is much higher than a standard broad market index fund's turnover, so it's best to own it in a tax-deferred account such as an IRA.

A second index alternative is my old favorite, the Dow Jones Industrial Average, composed of just 30 large-cap stocks. The Dow is price weighted. In other words, the higher the price of a share of a stock, the more the company's influence on the value of the index.

As weird as price weighting sounds, it enhances the diversification of the portfolio because stocks whose price runs up quickly tend to split, and new companies take their place leading the index. (Many large tech companies, especially, rarely split their shares. But as a result, the Dow won't let them in.)

You can buy the Dow through the SPDR Dow Jones Industrial Average ETF (DIA), nicknamed Diamonds, with an expense ratio of 0.16%. The fund's 10-year annual average return is nearly two points below the S&P 500's, but that’s not bad considering that tech and communications represent just 22% of the portfolio.

I'm not telling you to avoid conventional broad-market funds. Notice that I am still recommending them. I'm just saying there are other ways to get better diversification and come close to really owning the U.S. stock market.

One of the many drawbacks of record-low interest rates is that they have made creating an income stream in retirement significantly more complicated. Retirees and near-retirees can no longer rely on certificates of deposit and U.S. Treasuries to provide reliable, risk-free income. Interest rates are so low that these investments no longer keep up with inflation, which means investors effectively lose money over time. Likewise, the traditional 60-40 portfolio—60% stocks and mutual funds and 40% government bonds—has fallen out of favor with some analysts because of the abysmal returns from the bond portion.

That creates a conundrum for older investors who are reluctant to increase their exposure to an uncertain and volatile stock market. But the financial services industry—specifically, the insurance industry—has an antidote: annuities that provide higher returns than you’ll earn from CDs or government bonds, with limits on how much you can lose in a market downturn.

Annuities have a checkered reputation. Insurers have created a seemingly endless variety, with a seemingly endless list of bells and whistles, and the products are often poorly understood. And annuities are sometimes loaded with high up-front commissions that can motivate some insurance brokers to sell them to investors who don’t understand the terms and restrictions. Worse, the commissions limit investors’ returns because insurance companies adjust caps and other features to recoup the cost of the commissions.

In recent years, though, companies such as DPL Financial Partners, which distributes annuities and life insurance to financial planners, have developed commission-free indexed annuities. The lack of commission allows certified financial planners to offer the annuities without running afoul of the fiduciary rule, which requires CFPs to put their clients’ interests above their own.

An increasing number of fee-only planners are recommending indexed annuities to clients who are near or in retirement and want the security of guaranteed income that will last the rest of their life. An annuity can also reduce your portfolio’s overall risk and provide peace of mind, especially when the markets play havoc with stocks and stock funds. But annuities aren’t appropriate for everyone—plus, some planners, insurance agents and brokers are still pushing expensive, high-commission products.

The indexed annuity menu

Indexed annuities come in different flavors, with different degrees of complexity and cost. The most basic is a multi-year guaranteed annuity, which provides a fixed rate of return over a specific period of time (typically three to seven years). They’re similar to certificates of deposit but usually offer higher yields. Currently, five-year fixed-rate annuities have yields that range from 2% to 2.75%, compared with an average of 0.35% for a five-year CD.

If a five-year yield of less than 3% leaves you underwhelmed, your financial planner may suggest a fixed-index annuity. With these annuities, you are protected from losses, and your returns are linked to a specific index, such as the S&P 500. Instead of investing your money directly in stocks, though, insurance companies invest most of it in fixed-income investments and use options to provide the potential for higher returns.

In exchange for protection against losses, fixed-index annuities limit how much you earn, even when the market is going gangbusters. For example, if your contract has a cap of 6% over a specific period of time, you’ll earn a maximum 6% rate of return, even if the S&P 500 index rises 25% during that same period.

For somewhat bolder investors who still want some protection from the ravages of a bear market, the insurance industry offers buffered annuities, also known as registered index-linked annuities, or RILAs. Buffered annuities more closely resemble equity investments in that you can lose money in a down market, says David Lau, founder and CEO of DPL Financial Partners. But the annuities have a floor, or buffer, limiting how much you can lose. For example, if the annuity has a buffer of 10% and the index it’s linked to falls 4%, you lose nothing. If the index falls 30%, though, you’ll lose 20%—not quite as terrible, but still a loss.

In exchange for taking on this higher level of risk, buffer annuities offer the potential for you to earn higher returns on the upside—for example, up to 15%, instead of 6% for a fixed-index annuity, Lau says.

The drawbacks

Many CFPs remain leery of indexed annuities, arguing that the amount of MacGyvering involved to create these products leads to unnecessary complexities that can mislead investors. Although indexed annuities may be appropriate for a narrow group of investors, the products in general are often loaded with fees and miscellaneous charges, says Ron Guay, a CFP with Rivermark Wealth Management, in Sunnyvale, Calif. And though indexed annuities are often marketed as low-risk or even risk-free, he says, “there are all kinds of risks when you take a closer look.” Some potential drawbacks:

Unpredictable terms. Insurance com­panies reserve the right to change the cap, floor or participation rate (see below) at the end of a prescribed period. For example, you could purchase a fixed-index annuity with an 8% cap and a year later see that cap lowered to 7%. Ask the insurer, or your planner, for the insurance company’s record with respect to previous caps. That could give you an idea of how consistent—or inconsistent—the terms of the annuity will be.

Surrender charges. Most multi-year guaranteed, fixed-index and buffered annuities impose surrender charges if you withdraw your money before a specified period of time (typically six to 10 years for fixed-index and buffered annuities). Some insurers allow withdrawals of up to 10% of your account value annually after the first year—but if you withdraw more than that, you’ll be hit with a surrender penalty of up to 15%. The fee gradually decreases each year and will eventually disappear, but withdrawing more than the permitted amount before the surrender period expires means you’ll lose money.

Opportunity cost. Historically, stocks have outperformed all other investments. Although investing in a fixed-index or buffer annuity gives you some exposure to the market, you’re still forgoing the potential for significant gains. In part, that’s because when the annuity provider calculates an index’s returns for the purpose of crediting your account, it typically doesn’t include dividends. That’s a significant omission. Over the 20-year period that ended in October, the S&P 500 index delivered an annual return of 4.26% without dividends and 6.3% with dividends, according to Fidelity Investments. That means an annuity investor would leave 47% of stock market returns on the table, and that’s before taking any caps or participation rates into account, Fidelity says.

For that reason, indexed annuities rarely make sense for long-term in­vestors, says George Gagliardi, a CFP with Coromandel Wealth Management in Woburn, Mass. Over the past 50 calendar years, the S&P 500 index has returned an average of more than 12% a year, he says. “If you were to apply a buffer/cap strategy to these 50 years of returns, you would end up with an average return that was 40% lower than the index itself,” he says. “That’s a high price to pay for reduced losses in some years.”

Are they for you?

Supporters of indexed annuities argue that they’re not designed to replace stocks or stock mutual funds. Instead, they can boost returns on the fixed-income side of your portfolio—a portion of the 40% fixed-income allocation in a 60-40 portfolio, for example.

The products also offer tax advantages, particularly for savers who have already maxed out on their contributions to 401(k)s, IRAs and other tax-deferred accounts. If you use after-tax money to buy an annuity, taxes on your earnings will be deferred until you withdraw the money. (To avoid a 10% IRS early-withdrawal penalty on your investment earnings, you must wait until you’re 59½ to take withdrawals.) By contrast, interest from CDs is taxed in the year it’s earned. With that in mind, Gagliardi strongly discourages clients from using IRA funds to buy annuities. “With few exceptions, annuities do not belong in IRAs,” he says. “It negates the tax-deferral aspect of annuities—because it is already present in IRAs—which is one of the more significant benefits of using annuities.” (See Should You Add an Annuity to Your 401(k)? for more on this topic.)

Another potential benefit: Most annuities contain riders that, for an additional cost, allow you to convert your account to a pension-like stream of income. This feature, known as a guaranteed lifetime withdrawal benefit (GLWB), provides a guaranteed payout from your annuity each year for the rest of your life—or, depending on the rider, for the rest of your life and your spouse’s life—even if the account balance falls to zero.

Lau says this feature is popular with near-retirees who like the idea of guaranteed income in retirement but want more flexibility than you get with an immediate annuity, which locks you into lifetime payments but also requires you to relinquish control of the money. With the GLWB, you can still take withdrawals, up to the account balance, at any time. The withdrawals will reduce the amount of your guaranteed payments. For example, suppose you have $100,000 in your account and your guaranteed payout rate is 5%, or $5,000 a year for life. If you later withdraw $10,000, your future payments will be based on 5% of $90,000, or $4,500 a year. Even with that added flexibility, you probably don’t want to invest more than 20% to 25% of your portfolio in an indexed annuity.

If you’re interested in investing a portion of your savings in an index-linked annuity, be wary of the hard sell. Don’t do business with an insurance agent or broker who claims that your annuity will deliver market-rate returns with no risk. “That’s how these products got a bad reputation,” Lau says. “The performance didn’t meet expectations.”

Consult a CFP who has experience with these products and can help you separate the wheat from the chaff. Unlike mutual funds, which can be compared fairly easily by looking at expense ratios, “it’s much harder to understand the costs of these strategies,” says David Blanchett, head of retirement research for Morningstar’s Investment Management group. “Get a planner that understands how they work.”

The Certified Financial Planner Board of Standards consumer website (www.letsmakeaplan.org) is a good place to start. You can search for a CFP in your area and drill down to determine an individual planner’s areas of expertise, including retirement income management and insurance planning.

How indexed annuities work

Indexed annuities are made up of many parts. Here’s a look at some of the terms you’ll encounter when considering one of these products, plus fees that will reduce returns.

Index tracking. Insurance companies use different time periods to measure changes in an index value for purposes of calculating your returns. Some base returns (or losses) on changes in the value of the index during a month, a year or longer; others may use average performance in the index over a specified period of time.

Cap. The upper limit on the amount you can earn over a specified time period. For example, if your annuity is capped at 3%, that’s all you’ll earn, even if the underlying index rises 15% over the index tracking period.

Participation rate. The percentage of the index’s return the insurance company credits to your annuity. For example, if the market rises 8% and the participation rate is 80%, the annuity would be credited 6.4%. However, if the annuity also has a cap, which is common, the amount of your credited return could be limited. For example, if the annuity in the above example had a 3% cap, your credited return would be 3%, not 6.4%.

Buffer (or shield). Insurance companies that offer this feature will absorb a certain percentage of losses before deducting the value of the loss from the indexed annuity. For example, if the buffer is 10% and the index declines 12%, the value of your annuity would decline 2%.

Spread/margin/asset fee. An amount that is subtracted from the gain in the index linked to the annuity. For example, if the annuity has a spread of 3% and the index gains 9%, you would be credited with just 6%. These built-in fees could have the same impact on your returns as an up-front fee or commission, even if the investment is marketed as a “no fee” annuity.

Surrender charge. Typically imposed if you withdraw all (or more than a specified amount) of your money before a period of time—usually six to 10 years—has elapsed. For example, a 7% surrender charge might apply in the first year of the contract, fall to 5% the second year and gradually decrease to zero in the eighth year.

Riders. Extra features, such as guaranteed lifetime income that begins once you retire, that are added to the annuity for an additional cost.

Other types of annuities

Besides the indexed annuities discussed in the accompanying article, these are the most popular types of annuities:

Single premium immediate annuity. With this product, you typically give an insurance company a lump sum in exchange for monthly payments for the rest of your life, or a specified period. In exchange, you usually give up the ability to take additional withdrawals from the account. With some exceptions, you can’t access your money for unexpected costs—which is why planners recommend investing only a small percentage of your savings. (See How to Create Income for Life.)

Single premium deferred annuity. You get guaranteed payments when you reach a certain age. For example, a 65-year-old man who invests $100,000 in a deferred annuity that starts payments when he turns 80 would receive about $1,568 a month, according to ImmediateAnnuities.com, compared with $485 a month if he were to start payments immediately. You can also buy a deferred annuity, known as a QLAC, in your IRA or 401(k), which also reduces your required minimum distributions when you turn 72.

Variable annuity. A type of deferred annuity sometimes used by high-income savers who have maxed out on other retirement savings options. You invest in mutual-fund-like subaccounts to create future income (usually in retirement). Earnings accumulate tax-deferred, but the underlying investments can also lose money. Most variable annuities guarantee a minimum income stream, often with a rider, but fees can be high.

The maxim "don't fight the Fed!" rang true on Tuesday.

Positive momentum started yesterday by the Federal Reserve's bond-buying announcement continued after Fed Chair Jerome Powell told senators that "some form of support" would be "appropriate," implying that Congress should continue to provide financial help to ensure a recovery. A Bloomberg report saying the Trump administration was mulling a $1 trillion infrastructure package added to the optimism.

Health care was among the day's top sectors, with Dow components Merck (MRK, +4.0%) and UnitedHealth (UNH, +2.4%) helping to lead the industrial average 2.0% higher to 26,289, and the S&P 500 1.9% higher to 3,124.

Dow components Apple (AAPL, +2.7%) and Microsoft (MSFT, +2.5%) also propelled the Nasdaq (+1.8% to 9,895), as did Zoom Video Communications (ZM, +1.5%), which finished at yet another all-time high. The small-cap Russell 2000 finished 2.3% higher, to 1,452.

Can stocks go up forever? Of course not. But the government is proving an effective aid to investors right now. Thus, as long as the Fed and Congress appear willing to spend their way out of a recovery, it's impossible to rule out the idea of stocks grinding higher even in the face of worsening COVID-19 data in many parts of the country.

"Our view since the April FOMC meeting has been to follow the Fed because they print the money and are actually putting it to work," says Canaccord Genuity equity strategist Tony Dwyer. "We want to add risk as the consolidation plays out. Market swings have been at lightning speed and we believe many of the uncertainties that typically surround a crisis are on the path to recovery."

But be mindful of how you choose to try to ride the trend higher.

Airline stocks and retail stocks have the potential for outsized gains (because they're starting from more depressed levels), but government help can only do so much for these fields -- real recovery requires people to be more comfortable with leaving their homes.

Many technology stocks, however, are surviving and even thriving, and the sector offers a wealth of options. Hedge funds' most widely held blue chips are crowded at the top with tech names, but these 14 lesser-known plays offer considerable upside too. And don't discount the coronavirus effect, which should continue long after the COVID-19 threat subsides. Several tech stocks that enjoyed a lift during the early stages of the pandemic are still charging higher of late, including a few that have recently set new all-time highs.