A Skeptical Look at Use of New Investment Indices
April 24, 2019 by Michael Jay Markey Jr.
Product manufacturers in the fixed index annuity (FIA) world seem to be broken down into two groups.
Those who believe, build, and use exotic indices and those who don’t.
The latter warn about the dangers of back-tested results. They’ll say things like, “have you ever seen a bad back-test?” Surely, you haven’t.
And I believe most advisors are aware of the risks associated with the newest flavor of the month index birthed by some of the brightest numerically oriented minds within the insurance industry towers. However, more intriguing is the total disregard to a much bigger fault or risk associated with back-tested results, which is present in traditional and exotic indices.
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Wink’s Note: It is disingenuous to assume current options costs during historical periods.