The rainbow crediting method launched towards the end of 2007. Unfortunately, the launch coincided with the tail of the previous bull market and annuity buyers selecting the rainbow method in 2007 and much of 2008 received the same zero returns as other indexed methods. However, as the stock market rebounded in 2009 the rainbow began to show its performance colors and this article looks at the relative performance of the different rainbow methods first reviewed two years ago.
The rainbow method is an option basket whose best-performing indices are weighted more heavily than those that perform less well. It is always a “look- back” because the money is allocated based on the ranking of the performance after the period is over. Rainbows are always index blends, but not all index blends are rainbows. The difference is blended methods state at the beginning what the percentage make-up is of the indices in the blend, but the rainbow method combination is based on the returns calculated with the largest portion going to the best performers. The Rainbow marketing appeal has been expressed by saying that the annuity buyer gets to bet on the race after it has been run and that most of the bet will be put down on the horses that “win or place.”
Learn about the rainbow strategy and how you can get your own pot of gold in my book, Outlasting the Storm: A Survival Guide to Retirement Income Planning
Additional credit to Jack Marion “Rainbow Connection (Getting the largest pot of gold).” May 2010.