An Alternative to an Indexed Annuity
Henry Montag, CFP, CLTC | June 15th, 2009The use of “Indexed annuities” as an Investment vehicle have grown significantly over the last 9 months primarily due to their ability of providing the annuitant an opportunity to participate in a portion of the growth of the stock or Bond Market , while issuing an Ironclad guarantee against the loss of any principal when held to maturity.
However the one drawback to this type of investment has been its lack of liquidity and loss of control over ones principal prior to the holding period. Reason being was that’s how the product was packaged by the Insurance company……..
But what if you were able to package the same 2 components into your own investment that offered the same 2 opportunities and guarantees without the drawbacks of the lack of liquidity and the loss of control of your principal? Well you can by simply purchasing a 7 year Guaranteed fixed return Investment such as a Fixed annuity or another form of a fixed bond with a portion of the money, approximately 70% .
At the same time you place the balance of the money, other 30% , into the stock or bond market of your choice. Even if you lose all of your money in the stock or bond portfolio, highly unlikely , youll still have the guaranteed fixed portion of your money which will return 100% of your entire original investment .This is exactly where you would have been had you purchased the Indexed Annuity from the Insurance Company.
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About the Author: Henry Montag is an Independent Certified Financial Planner as well as a CLTC. He’s been in practice since 1976 with offices on Long Island, New York. He is a contributing writer for The Moneypaper, a national financial publication, been my sourced by Investors business Daily, Long Island Business News, Newsday, Wall St Journal, The Moneypaper,Investment News, Senior Lifestyles and has held insurance and securities licenses for over thirty years.
June 15th, 2009 at 7:02 pm
True about being able to synthesize the EIA with two separate investments. For that matter, what’s the pont of mutual funds and why pay a fee and expenses when I can buy stocks and bonds on my own? Most of what is sold today is a “packaged” product and the investor would be better off without the package. The reason packages sell is because of investor ignorance (i.e they prefer simplicity). If the average investor read your post, they would say , Huh? Packages are much simpler for them to understand.