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Diversify fixed indexed annuities with custom indices
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You know not to “put all your eggs in one basket.” Instead, you want to give your clients a basket of exposure with varying characteristics, risks and return potential that could help shield them from wide, unpredictable market swings as they strive to make steady progress toward their financial goals.
How custom indices can help optimize FIA outcomes
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Your clients may benefit from diversifying inside of their annuities. If they’re interested in protection from market downturns and growth potential based on market performance that a fixed indexed annuity (FIA) offers, choosing from a combination of benchmark and custom indices can be beneficial.
Today, financial professionals have access to a wider range of index options within a FIA — including custom indices designed to help support diversification, manage volatility and provide additional allocation choices beyond traditional benchmark indices like the S&P 500®. According to research conducted for Athene by The Index Standard, this strategy can help reduce volatility and offer long-term diversification advantages.
Why diversification matters in fixed indexed annuities
Spreading allocations across multiple custom index options may help diversify index exposure, especially if the indices are not closely correlated — in other words, when their fluctuations are less likely to move together.
Here’s an example using two returns from custom index options over three years.
Both indices have average annual returns of 10%. Index B is more volatile (8.2%) than Index A, but they move in opposite directions. In other words, they aren’t correlated.
Now let’s put the two custom index options together in the same basket. Your client has equal exposure to each. Here are the combined returns for each year.
The average annual return is the same: 10%. But the combined volatility is much lower (4.6%). That’s because the indices’ fluctuations offset each other, creating a smoother overall return.
Hypothetical examples are for informational purposes only and not indicative of past, nor intended to predict, future performance of any specific annuity product or interest crediting method.
Why diversification beyond a single index may matter
What if your client had a FIA with two different indices selected — one tracking a standard benchmark index, the other global stocks? They would have some diversification and the potential for more satisfactory returns.
Nearly all FIAs include interest crediting strategies tied to the S&P 500® index, which is widely used to represent the overall U.S. equities market. But it wasn’t designed to meet the needs of FIA owners. That’s because even though the S&P 500 historically has returned approximately 10% a year, short-term returns can vary widely.1
Since 1957, when the modern S&P 500 was born, returns over any one-year period ranged anywhere from a loss of almost 37% to a gain of almost 45% with an average annualized return of 10.26%.1 For 10-year periods in the last 20 years, the returns have been more stable with average annualized returns of nearly 14% in the decade between 2015 and 20252 and almost 11% in the 20 years between 2005 and 2025.3
That 10-year number is important, because it’s a typical time horizon for many FIAs. If your client owns a FIA, they likely value the stability and protection features it offers. And they might not find the potential to lose 6% in any given year on the FIA’s underlying index a suitable risk, since it would mean a 0% credit for that year. However, choosing a custom index inside a FIA may help reduce the likelihood of a 0% credit and may help provide more consistent interest crediting from year to year.
While the S&P 500 remains one of the most widely recognized market benchmarks, recent market performance has highlighted how returns can become concentrated among a relatively small number of large-cap companies. For clients relying on a single index strategy, that concentration may create a different risk profile than they expect.
Rather than depending on one benchmark, many financial professionals are considering a broader mix of indices within a FIA — including custom indices designed with diversified asset exposures and volatility-control mechanisms. Combining multiple index strategies may help create more consistent opportunities to earn interest credits without relying on any single market segment.
How volatility-controlled indices help manage risk
If you apply a custom index to a FIA, you’re helping add diversification to the mix. Custom indices with volatility control mechanisms automatically monitor the volatility of the assets within the index and dynamically adjust to control the index’s exposure to volatility.
The custom volatility control indices within FIAs target a desired level of volatility. When the underlying risky/growth asset becomes more volatile, the mechanism shifts the allocation from the high-risk asset to a stable asset (like cash). When the custom index becomes less volatile, the opposite occurs.
No matter what’s happening in the market, however, the custom index’s volatility control mechanism seeks to limit volatility to a preset “target” level. As a result, your client might not enjoy all the gains when the market rises, but they may be less affected by major market declines, potentially leading to more consistent interest credits.
You could consider a FIA that includes both a custom index and the S&P 500 to broaden a client’s annuity index allocations. You have a lot of options for custom indices today: they can be based on U.S. stocks only, global stocks, and a mix of stocks, bonds and other types of assets. When the two indices are combined within the FIA, the amount of combined fluctuation may decrease, potentially smoothing out returns.
For clients seeking principal protection from market loss and growth potential, modern FIAs with custom indices as well as benchmark indices can provide greater diversification of index allocations. Consider newer FIAs with index structures designed to support diversification, allocation flexibility and a simplified experience. Determining the appropriate FIA and custom index selection for a client's “basket” may help support a retirement strategy aligned with the client’s goals.
Get more comfortable with custom indices from the insights and analysis in our exclusive Custom Index Strategy Guides: Optimizing Retirement Outcomes.
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1NYU Stern. Historical Returns on Stocks, Bonds and Bills: 1928–2024. January 2026.
2S&P 500 Data. Stock market returns between 2013 and 2025. Accessed July 2026.
3S&P 500 Data. Stock market returns between 2003 and 2025. Accessed July 2026.
Material in the INDEX INSIGHTS whitepapers includes research commissioned by Athene and conducted by The Index Standard®.
Indexed annuities are not stock market investments and do not directly participate in any stock or equity investments. Market indices may not include dividends paid on the underlying stocks, and therefore may not reflect the total return of the underlying stocks; neither an index nor any market-indexed annuity is comparable to a direct investment in the equity markets.
The S&P 500® Index (the “Index”) is a product of S&P Dow Jones Indices LLC or its affiliates (“S&P DJI”) and has been licensed for use by Athene Annuity and Life Company (“Athene”). S&P®, S&P 500®, SPX®, US 500, The 500, iBoxx®, iTraxx® and CDX® are trademarks of S&P Global, Inc. or its affiliates (“S&P”); Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”). Athene’s products are not sponsored, endorsed, sold or promoted by S&P DJI, Dow Jones, S&P, or their respective affiliates, and none of such parties make any representation regarding the advisability of investing in such product(s) nor do they have any liability for any errors, omissions, or interruptions of the Index.
Although fixed indexed annuities offer principal protection from market downturns, the deduction of applicable charges could exceed any interest credited, resulting in the loss of principal.
