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What's Hot?
What has been out performing mutual funds? With the longest bull market in
history, despite the recent trauma in the markets, mutual funds have been
heralded as the salvation of all investors. The reality is, though, there
is another investment out there that has consistently been beating these
mutual funds as the markets become more and more volatile and that
investment is variable annuities.
What are the figures, you ask? The average foreign stock investment in a
variable annuity out performed the average foreign stock mutual fund over
the last five years by 4% per year.
In fact, last year's mutual fund of the year, as named by Morningstar, was
out performed by its annuity equivalent by over 20%. Annuities also provide
unique provisions including protecting the funds from being taken for
nursing home care, providing guarantees (even if your investments go down
your family inherits what you put in plus 5% a year), and avoiding probate.
The reason that aggressive investments in variable annuities have
consistently out performed their mutual fund counterparts is because, first,
variable annuities tend to be smaller, giving them more flexibility.
Second, investors in variable annuities tend to stay longer than they do in
their mutual fund equivalents, making the money supply to the investment
manager more stable, again creating opportunities. Third, the investment
manager is usually given more flexibility in what he is allowed to invest in
in each sub-account of a variable annuity.
If you would like to find out if annuities might be an appropriate
investment for you, call my office (801-486-9000 or 800-422-9997) to arrange a
time for us to talk. I look forward to our discussion.
What Are Annuities? First of all, there are two basic types of annuities, fixed and variable. A fixed annuity is, in effect, a loan you make to an insurance company. In return, the insurance company guarantees the return of your principal but generally does not guarantee the amount of interest you will receive. A variable annuity is like a tax-deferred mutual fund. They’re purchased from insurance companies because they have a small amount of life insurance, which allows the annuity to offer tax-deferral benefits.
How To Choose An Annuity Choosing an annuity is much like picking a mutual fund. You want to study the management, its investment philosophy, and its track record. The easiest way is to look at the track record of the annuity’s comparable mutual fund..
Annuity Highlights
- Annuities are a better investment than mutual funds for many investors.
- Annuities are used primarily for retirement planning and should be considered only as a long-term investment.
- Use only variable annuities; their payouts vary with how well the annuities perform.
- Annuities are mutual funds with an insurance component that provides tax benefits.
- Do not use fixed annuities.
- Annuities can cut your taxes dramatically.
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