In order to determine whether you should invest in stocks, annuities, or both, it is important to understand each component and how they compliment each other in an investment portfolio.

With today’s stock market at an all-time low, some experts would recommend that this is a good opportunity to invest in stocks. The “buy low, sell high” adage may yield positive results if you are willing to invest in the long term.

Conversely, some would also argue that annuities are a safer bet in today’s economy. An annuity is an investment that yields a guaranteed payout. There are two types of annuities: fixed and variable.

In a fixed annuity, a specific amount is invested and payouts are received monthly, quarterly, or annually. The fixed annuity offers a guaranteed payment wherein the principal amount is never lost, even though there may be a decrease in interest.

A variable annuity comprises stocks, bonds, mutual funds, and treasuries. Unlike the fixed annuity, there is a risk there may be some loss of principal due to the fact that the investment covers a wide range of securities.

An investment portfolio, such as a 401K, for example, allows for contributions to be made into the fixed or variable funds, or a combination of both. The fixed annuity may yield a rate of 8.25% whereas a variable annuity may yield five times the rate of a fixed – but again, it is subject to market volatility.

The bottom line is that an investment portfolio that comprises both stocks and annuities do compliment each other. There are many providers who offer what is called “fixed index annuities” that are tied to the stock market index such as Dow Jones and S&P.

There is no question that variable annuities offer long-term growth. However, it is important to research the many providers to ascertain who offers the best combination of these funds.

Whether you decide to invest in stocks or annuities or both, it is recommended that you keep contributing to the investment portfolio. Even though the economy is in a recession, the market will eventually correct itself and the investments you currently own will produce a higher rate of return.

Finally, here is a tip you may find useful. If you have a 401K, change the contribution to the fixed rate fund. When the market begins to rally, you can then opt to change to Variable A or a combination of both.

Brought To You By:
Woody Alpern
CPA/PFS
www.yourwealth.com
woody@yourwealth.com

How does guaranteed income for life sound? Unless you have all the money you could possibly ever need, it probably sounds great. But surprisingly few people know that you can get income for the rest of your life by purchasing an annuity.

Annuities aren’t something we hear about every day, but they are widely available. And they offer benefits that make them quite attractive to certain types of investors. They may be used to reduce tax liability, save money while earning interest or receive regular payments upon retirement.

Annuities are contracts between investors and insurance companies. The investor may make one large payment or a series of contributions to the annuity. The insurer then makes periodic payments to the investor. These payments may begin right away, or they might begin at a set date in the future.

Payments from the annuity can be disbursed over a period set forth in the contract, or for the insurer’s and/or the insurer’s spouse’s lifetime. Either way, the annuity earns interest for the investor. But those who purchase lifetime annuities may collect more or less than the full amount, depending on their life span.

Benefits of Annuities

For those who are looking for a way to defer taxes on investment earnings, annuities are a good choice. Interest earned is not taxable until money is withdrawn. Retirement accounts also offer this benefit, but there are limits to how much one can contribute to them each year. With annuities, there are no such limits. And in the case of annuities, there are no penalties for withdrawing money before you reach a certain age.

Money invested in annuities is also inaccessible to creditors. This is because that money technically belongs to the insurance company from which you purchased the annuity. Creditors may, however, be able to take a portion of any payments you’re receiving from the annuity.

One thing that concerns many investors about annuities is the fact that they could lose their investments if they die soon after starting a lifetime annuity. This can, however, be prevented. Most insurance companies offer the option to buy a guarantee period with their annuities. If you do, the insurance company will make payments to your designated beneficiary for the duration of the guarantee period if you die. Like life insurance benefits, annuity payments are not governed by wills and do not go through probate.

Annuities are often used to supplement 401K and IRA retirement distributions, but they may also serve a number of other purposes. But no matter how they are used, they offer a number of attractive benefits. If you’re interested in an annuity, your insurance company can help you determine whether it is the right investment for your needs.