11/4/26
When in a meeting with me, you may hear me use a phrase claiming that zero is our hero. I want to deep dive into what I mean by that. The market has had bad years, that is without question. We hear a lot about how investments can grow when the market is doing well, but what about when things aren’t going so great? That’s where the phrase “zero is your hero” comes in. Most conversations about investing focus on potential gains but understanding how different financial strategies handle market downturns is just as important. It’s a side of financial planning that doesn’t always get the same attention as growth, but I’d like to give it some attention.
Zero can be your hero because it helps limit the impact that negative index performance can have on your account. Some indexed products have a feature called a 0% floor. With certain indexed products, a 0% floor means that when the index goes down, the interest credited based on that index performance won’t go below zero for that crediting period, subject to the contract terms. Why does that matter? Because, when your account avoids a negative index credit, you don’t have to make up that particular loss before you can start earning interest again. Over time, this can help your account avoid some of the setbacks that come with negative performance in the market. Essentially, zero gives you the opportunity to focus on growth without taking a negative index credit when the market has a difficult year.
Think of growing your money like walking up a staircase. In a good year, your account takes a step up. But when the market drops, you can take a step backward, meaning you now have to work your way back up before making any real progress. As I discussed in my previous blog post about “What Happens to Your Money When the Market Takes a Dip? Are You Prepared for the Comeback?“, losing money can make recovery harder than many people realize. A 20% loss, for example, requires a 25% gain just to get back to where you started. This is where “zero is your hero” comes into play. With certain indexed products, a 0% floor means that if the index goes down, the interest credited won’t fall below zero for that period, subject to the contract terms. Instead of taking a step backward because of negative index performance, your account has the opportunity to stay where it is and potentially take another step forward when the index performs well. You’re not earning interest during that down period, but you’re also not having to climb back up from that particular index loss. Over time, avoiding some of those setbacks can make a meaningful difference in how your money grows.
Yes, this works in real life! See the chart below which illustrates “The Lost Decade”:
Of course, a 0% floor doesn’t mean there are no costs or risks. Fees, withdrawals, surrender charges, and other contract provisions can affect account value. There may also be limits on how much interest you can earn, such as caps or participation rates. And remember, indexed products aren’t directly invested in the market.
So, what’s the bigger picture? Growing your money isn’t just about how much you can earn during a good year. It’s also about understanding what happens during the difficult years and how those losses can affect your long-term goals. That’s really what “zero is your hero” is about.
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