Spotlight on Annuities
Some investors are put off by the volatility and stress of the stock market. These play-it-safe types are likely to consider investing in annuities, an opportunity available through your insurance company. Before you make a decision, there are a few things you should know about investing in annuities.
A Warning About Indexed Annuities
If you’ve been looking into new investment options, you may have heard the chatter surrounding indexed annuities. These insurance products have been around since the 90s, but have recently been the focus of attention. Indexed annuities post gains based on changes in an index, such as the S&P 500 Composite Stock Price Index. While your investments can appreciate according to the market, your contract also provides that you cannot lose your initial investment.
This might sound ideal, but there are a few details about annuities that are worth considering. Indexed annuities harbor the largest commissions of any investment at around 9-12%.
These are enormously expensive products to market and annually administer. Commonsense should tell you those expenses have to be paid for by the buyer of the annuities.
So, although you can’t lose your money, you are receiving that benefit with a significant cost. Your insurance company has to make money, and that profit is coming out of the gains of your investment.
Pulling Out Of An Indexed Annuity
Once you commit to an annuity, it’s very difficult to change your mind. Often, your contract locks in the money long term, and it can be very expensive to extract it again. So, indexed annuities may be a bit safer, but they yield less and have less liquidity than other investments like stocks or bonds.
Annuities have gained popularity largely because of fear due to the stock collapse in 2008. Investors have become timid when dealing with the volatile stock market, and negativity in the media only initiates and confirms that fear. Your financial portfolio can suffer from emotions like fear and panic, so it’s best to approach annuities from a logical, well-researched point of view.
Of course, your CPA can always help you to reach the conclusions that are right for you and your family. But even after they’ve helped you decide what to do with your financial portfolio, the job is just beginning. They also counsel you and help you to be happy with your financial standing.
Build smartly, protect smartly, and talk to your CPA.
