Thursday, March 08, 2007
www.legacyannuities.com
The Equity Indexed Annuity.
William Burger
The equity index annuity is not magical. It is not something between a fixed and variable annuity. Many people get confused and think it is a variable annuity linked to an index. Well, it is not. It is simply a FIXED annuity. You can’t loose money due to stock market declines, and it exhibits the same principles as any other fixed annuity.
The equity indexed annuity is a fixed annuity that allows you to take advantage of the stock market in the up years and avoid the down years. When the market goes up you can participate in the gains. When the market goes down you won’t loose money. Does this sound to good to be true??? Well, it’s really not and I will explain why.
So how does the indexed annuity work? This is the question that prompts me to write for the benefit of anyone willing to read! First of all, let’s take a look at investments and savings vehicles. They either fall in the category of “opportunity” or in the category of “safety.” What this means is every investment vehicles can fall into one of these two areas.
Think of opportunity vehicles as stocks, bonds, mutual funds, variable annuities or real estate investment trusts. These are investments that allow you the opportunity to make an enhanced rate of return on your money with some risk of principal. That is there primary purpose! They are not designed to protect your principle. Safety of principal is usually foregone to get an enhanced rate of return.
Safety vehicles are CD’s, Fixed Annuities, Treasury Bills and others. The bottom line is these are savings plans with a fixed rate of return in a safe and secure place. The primary purpose is safety with a reasonable rate of return. Investors place their money in these vehicles to keep their Principal SAFE. They are limited because people are willing to accept this because their principal safety is their primary goal.
Investors normally have an interest in one type of an investment or another. Other investors want a portion of their money in an opportunity and a portion in a savings vehicle. That’s called diversification. The perfect investment would be 15% in a Money Market account with unlimited check writing. That ain’t going to happen! No one wants to relive the late 1970’s especially if you are a borrower. I remember those days being in the banking industry.
Furthermore some investors want to be in an opportunity area, but can’t afford to take the risk…they don’t want to lose money. Some investors have a higher risk tolerance and don’t have an interest in safety vehicles. Most intelligent advisors help an investor to determine which portion of their money should go where.
So what does that have to do with the equity indexed annuity??? Great question… I am glad you asked. The equity indexed annuity is unique in that it is a safety vehicle, while giving the element of opportunity without the inherent risk of loss of principal. It crosses the boundary of opportunity with guarantee of principal. Again, it is a fixed annuity with participation in the growth of the indexes in the market. That’s it!!!
About the AuthorWilliam Burgerwburger1@ameritech.netMore Details about Participate in the stock market here.
The Equity Indexed Annuity.
William Burger
The equity index annuity is not magical. It is not something between a fixed and variable annuity. Many people get confused and think it is a variable annuity linked to an index. Well, it is not. It is simply a FIXED annuity. You can’t loose money due to stock market declines, and it exhibits the same principles as any other fixed annuity.
The equity indexed annuity is a fixed annuity that allows you to take advantage of the stock market in the up years and avoid the down years. When the market goes up you can participate in the gains. When the market goes down you won’t loose money. Does this sound to good to be true??? Well, it’s really not and I will explain why.
So how does the indexed annuity work? This is the question that prompts me to write for the benefit of anyone willing to read! First of all, let’s take a look at investments and savings vehicles. They either fall in the category of “opportunity” or in the category of “safety.” What this means is every investment vehicles can fall into one of these two areas.
Think of opportunity vehicles as stocks, bonds, mutual funds, variable annuities or real estate investment trusts. These are investments that allow you the opportunity to make an enhanced rate of return on your money with some risk of principal. That is there primary purpose! They are not designed to protect your principle. Safety of principal is usually foregone to get an enhanced rate of return.
Safety vehicles are CD’s, Fixed Annuities, Treasury Bills and others. The bottom line is these are savings plans with a fixed rate of return in a safe and secure place. The primary purpose is safety with a reasonable rate of return. Investors place their money in these vehicles to keep their Principal SAFE. They are limited because people are willing to accept this because their principal safety is their primary goal.
Investors normally have an interest in one type of an investment or another. Other investors want a portion of their money in an opportunity and a portion in a savings vehicle. That’s called diversification. The perfect investment would be 15% in a Money Market account with unlimited check writing. That ain’t going to happen! No one wants to relive the late 1970’s especially if you are a borrower. I remember those days being in the banking industry.
Furthermore some investors want to be in an opportunity area, but can’t afford to take the risk…they don’t want to lose money. Some investors have a higher risk tolerance and don’t have an interest in safety vehicles. Most intelligent advisors help an investor to determine which portion of their money should go where.
So what does that have to do with the equity indexed annuity??? Great question… I am glad you asked. The equity indexed annuity is unique in that it is a safety vehicle, while giving the element of opportunity without the inherent risk of loss of principal. It crosses the boundary of opportunity with guarantee of principal. Again, it is a fixed annuity with participation in the growth of the indexes in the market. That’s it!!!
About the AuthorWilliam Burgerwburger1@ameritech.netMore Details about Participate in the stock market here.
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