Tuesday, February 15, 2005

Fixed and Variable Annuities

While these two may sound similar their are huge differences between fixed and variable annuities. A fixed annuity is basically tied strictly to interest rates. There is really no market risk to the money so losing money due to stock market fluctuation is not possible. Even though they can offer a lower rate of return when the market is down, they offer safety of principal and to many people, peace of mind.

The variable annuity, on the other hand, is quite different. It is normally linked to some stock market investment and can bear the same risk as the stock market. Variable annuities do enjoy the luxury of rising during stock market booms but they also participate in the falls when mutual funds and stocks are declining also. The biggest complaint about the variable annuity, aside from lack of safety, is often the costs associated to it. While some people defend them, they do tend to be a costly way to enter in the market. The benefits a variable annuity owner enjoys is the ability to switch mutual fund investments as often as possible without being taxed upon each move. Some argue this is worth it, although I am not quite convinced about this.

All in all, fixed and variable annuities are completely different. They offer different features and benefits and can be totally different vehicles. While the tax deferral and other things are similar, these two investment vehicle are totally different in their working. So which is right for you? Well, that all depends on your situation. There is no one right investment for everyone. Investing is personal and that's the bottom line. However, if you are looking for an annuity, keep in mind that annuities come in many shapes and sizes. They each offer different benefits and work completely differently.

If you are looking, make sure to find a trustworthy agent that can help you make the right decision. Also, don't be in a hurry to make that decision so it's not something you regret in the future. Do your homework and know your situation so you end up with something that fits you in the end. Annuities can be wonderful tax deferred investments for many people, however, as Elvis once said, "Only Fools Rush In."

Ignorance is not bliss...

Tony Bahu
Author of 'Annuities: The Shocking Truths Revealed'

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