Why Annuities Are Appealing in Tough Economic and Volatile Times
The latter part of 2011 and early part of 2012 have been dominated by what investment pros call risk on/risk off, which is just another way of saying volatility.
The markets have been up and down like a roller coaster. And in this kind of environment, fixed annuities may be particularly appealing.
As you probably know, an annuity is a contract with an insurance company. It can be purchased with a lump-sum payment or on a periodic basis. Either way, the money that is invested in the annuity is guaranteed to earn a fixed rate of return throughout the so-called accumulation phase of the annuity. Later, often when you retire, the annuity pays you back.
Fixed annuities – which are often used by people who are about to retire and need help stabilizing income from their investments – can be very appealing in volatile markets.
First, your capital is safeguarded by the insurance company because federal law stipulates that insurance companies must hold a reserve that equals the value of each annuitant’s policy.
Additionally, by offering a guaranteed rate of return, the insurance company assumes all market risk, insulating you as the annuitant.
Fixed annuities aren’t suitable for all investors. Additionally, insurance companies offer many types of fixed annuities, and that means it’s a good idea to consult your advisor before purchasing one.
Your advisor can help you determine if a fixed annuity is appropriate for your portfolio. It might be appealing to you in today’s volatile market.