Variable Annuities are Most Suitable for Sophisticated Investors

Ever since the 1990s, variable annuities have been touted as the next “hot” financial product. Stories of variable annuity successes are easy to come by; there was even a book written about variable annuities and how they can give you “financial peace of mind.” Variable annuities can do this – but they can also leave you with a decimated investment account, saddled with an unsuitable contract, or even unable to access your money without severe penalties, because with a variable annuity, your money is invested directly in the stock market. In fact, in a joint review conducted by the U.S. Securities and Exchange Commission and the National Association of Securities Dealers (NASD), variable annuities are pinpointed as having “weak practices.”

That’s not to say that all variable annuities are bad investments; in fact, for a certain type of investor, variable annuities can really pay off. This investor tends to be more sophisticated, has maxed out his or her other forms of tax-deferred savings, such as a 401k or an IRA, and is familiar with the market and how it works. With variable annuities, your principal is shuttled into a series of sub-accounts you chose. You are singularly responsible for monitoring what happens in these sub-accounts, so if you lose money, you only have yourself to blame. This is a risky proposition, especially if you are nearing retirement and want to count on that money being there. Variable annuities also feature long terms where your money is locked up – if you want to withdraw your money after suffering a market downturn or some losses, you will likely pay high surrender fees.

For people who are more conservative or have moderate income and savings, variable annuities can be a gamble. An alternative for those looking to take advantage of a variable annuity’s tax deferred status and the possibility of larger gains should consider purchasing an equity-indexed annuity, also called a fixed-indexed annuity. An equity-indexed annuity, instead of having your money directly influenced by market downturns, ties your gains to a particular market index (such as S&P 500) and pays a minimum rate when market conditions are not so good. And an equity-indexed annuity offers the same tax deferred benefits as variable annuities.

Does an equity-indexed annuity sound like a better fit for you than variable annuities? If so, please visit the AnnuityAdviceOnline.com Web site. Or call the Annuity Specialists at 1-888-837-4226 to learn more and get up-to-date equity-indexed annuity information.