Can Annuities Outperform Stocks?
In taking actions for your future, the most important and most crucial step is proper planning and the decision making process. Finding the right investment vehicle is perhaps the most important element of the retirement planning process. There are many investment plans that are available. Financial institutions have devised various plans that offer benefits that fit different individual’s goals. As an investor, you have to weigh the different options. Annuities, mutual funds, stocks and bonds, Certificate of Deposit or CDs among other things are the most common of this kind. It is important that you research well before you decide where to put your assets. The assistance of a good financial advisor is a key element to this process. It can be advisable that you not focus on only one type of investment. If you do have the available funds, it may be better to spread out your money. This is in turn spreads out risk.
When deciding where to invest your money, it is important to use the help of a financial advisor to evaluate the current market and economic conditions. In evaluating stocks versus annuities, it is important to keep the end goal in mind. Stocks do in fact provide for larger gains, but the risk of loss is always present. Annuitieseliminate the risk of market loss, but the gains aren’t always as large as that of a stock. It is vital to determine how much of your portfolio can be susceptible to risk and how much you want protected. Keeping pace with inflation is a concern for most retirees. Seek the advice of a financial planner to help construct the most appropriate portfolio blend of either stocks, annuities, or both. In the long run, annuities are not designed to out-perform the stock market, rather they are designed to protect from loss and keep adequate pace with inflation.
Annuities are best suited for long term investors. Any withdrawal prior to age 59 ½ is subject to a 10% tax penalty as well as regular income tax. Annuities often also have a surrender schedule, meaning that withdrawals may be subject to a penalty by the insurance company if not left in for a predetermined amount of time. Any guarantees on principal invested is based upon the claims paying ability of the underlying insurance company.