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Jun 2

Is An Annuity A Good Or Bad Investment?

Compared to what other investments? Is an annuity a good investment if you had invested the majority of your dollars with Bernie Madoff or Alan Stanford? How about if you invested in Countrywide, General Motors, Lehman Brothers, Enron, WorldCom Inc, Citi Group, Fannie Mae or Feddie Mac? Or maybe you were unlucky enough to have saved over and above what was insured at banks like Washington Mutual, IndyMac or Colonial Bank among many other large and small banks that failed.

Conversely, what if you bought and held Apple, Google, Priceline, Amazon or any number of biotech stocks for the last several years? You would be in the money, that’s for sure. But where do you find safe harbor for the dollars you want to invest conservatively?

Having the discipline and foresight to diversify your assets is most important in a fast changing investment landscape. Fixed, indexed and immediate annuity policies offer safety, income, growth, protection of principal, and an alternative to some of the more risky market based assets and ponzi schemes that have destroyed many investment and retirement portfolios through the years.

So Are Annuities Bad Investments?

It really depends on who you ask. We find ourselves in a period of industry warfare where a lot of disingenuous (and outright fictitious) information has been knowingly disseminated by those who think all of your money should be invested in stocks and bonds.

The flip side of this argument is that there are annuity agents who are promising the world with certain contracts and failing to disclose pertinent information to potential investors.  Believe it or not, there is plenty of middle ground when it comes to investing for retirement.

Those who say that annuities are bad investments tend to lump all annuity classes together. What they fail to disclose is that there are several annuity types (with different optional riders) that are designed for different investment goals. To say that they are all terrible investments and consumers should run (not walk) away from is extremely misleading.  At best, it’s lazy journalism; at worst it’s blatantly spreading half-truths and lies in order to push people toward risky investments in the stock market.

Misleading The Public For Personal Gain

Generally when these so-called investment pundits are espousing what they deem to be the negative attributes to annuity investments, they have ulterior motives. Oftentimes, they are shills for the stock market community and earn their keep by waxing poetic about annuity accounts they have never taken the time to research or understand.

You might remember that these same folks used to tell consumers that the insurance company kept all of your annuity dollars upon death. That’s not true, but it was enough to convince some consumers to avoid these safe and insured products.

Unfortunately, there are too many “annuity experts” out there doing their best to steer consumers away these accounts in order to pump more money into the stock market. Let’s face it; the market only goes up if people are buying stocks. If you are investing your hard earned dollars somewhere else, then there is less demand to prop up the overall markets. Sounds a lot like a ponzi scheme to me, but it’s legal so buyer beware.

What Are The Various Types Of Annuity Accounts?

Generally, there are four types of annuities for consumers to choose from. The only account that exposes the invested principal to market loss is a variable annuity. The other three types (fixed, indexed and immediate) are all safe and insured accounts that will not lose value when the stock and bond markets fluctuate. Additionally, all annuities can provide regular income in good economic times and bad.

Fixed, indexed, and immediate annuities have been purchased by investors for years to generate regular income and to protect retirement and non-retirement accounts alike. If they are such bad investments, then why are they often used in private and public pensions, structured settlements, lottery payments, and a host of other guaranteed contracts?

The fact is annuities are not bad investments. While it is true that annuity accounts pay commissions, have early surrender penalties, and can be longer term in nature; there is a place for them in most investment portfolios. When used properly, they provide a much needed insurance policy against income and/or stock market loss.

A Balanced Investment Portfolio

Stock market salespeople will have you believe that a balanced portfolio consists of stocks and bonds that are invested domestically and abroad.  That theory was put to the test with the “Great Recession” of 2008 and failed miserably. All market based investment classes lost considerable value and as it turned out bonds were no safer than stocks.

It is true that overall markets have rebounded, but the volatile swings and so-called Black Swan events are here to stay.  Younger investors might be able to better deal with such extreme fluctuations, but those who are in or near retirement often cannot weather such storms.

This is why a balanced portfolio contains assets with market exposure and those that cannot lose value when the next Black Swan event occurs. And of the assets without direct market exposure – fixed, indexed, and immediate annuity accounts are insured and reliable investments that will provide regular systematic income and principal growth to their owners.

It is unwise to disregard annuity accounts altogether when balancing an investment portfolio. Those who have, who were pushed into risky and unsuitable assets, have needlessly lost substantial dollars in the stock and bond markets.

However, those who invested a portion of their retirement portfolios in a fixed, indexed, or immediate annuity created a safety net that can provide guaranteed income and growth when the overall markets are losing significant value.

Summary and Information Request

In summary, when used properly annuities are valuable investments that have helped many consumers diversify their retirement accounts and reduced their direct market exposure.

Stock market cheerleaders can moan all day about surrender penalties and/or commissions, but let’s remember that these folks are not volunteers either.

The amount of money that it takes for them to constantly advertise on television and elsewhere has to come from somewhere.  They seem to all be making quite a bit of money off the general public, but have the audacity to gripe about a commission payment.

The bottom line: When used properly annuities are a very safe, stable, and insured investment that you can count on for growth and regular income. When diversifying out of the market, annuity accounts should be at the top of your list as an alternative asset class.

- Hyers and Associates, Inc. is an independent insurance agency specializing in annuity accounts. We provide quotes, illustrations, and information on the leading policies from several highly rated carriers.

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