When investors think of ‘safe investments,’ they tend to think of bonds or CDs, which calculate from a pre-determined timeline and interest rates. During a low-interest-rate environment, both provide safety, but not necessarily, the returns investors are seeking. Bonds and CDs have differing benefits and risks despite being viewed by investors as ‘safe.’
A third ‘safe’ interest-bearing alternative is fixed-indexed annuities, which capture the upside of the market while protecting the principal from the downside risk. Before investing in bonds, CDs, or fixed-indexed annuities, the benefits and risks of each should be considered:
Fixed-Indexed Annuities have characteristics of both fixed and variable annuities and are a contract between an insurance company and the purchaser. Many indexed annuities have a minimum interest guarantee, and your principal is protected from market volatility, which retirees tend to seek.
In today’s low-interest-rate and volatile market environment, investors seeking safety must consider how any investment fits into their investment strategy. All the above investments offer benefits to the investor. Each has its place in retirement planning, but only if suitable. As well as part of a financial strategy using other types of investments and accounts. Investors should fully understand the risks associated with annuities before purchasing them. If you have any questions about annuities, now is an excellent time for us to visit.
Disclosure: Fixed index annuities are long-term investments and are not a direct or indirect investment in the stock market and while protecting principal against all stock market losses, will in almost all cases earn a lower rate of return than the stock market in positive stock market growth years, meaning you will not receive full stock market participation.
Disclosure: Annuities generally contain fees and charges which include, but are not limited to, surrender charges, administrative fees and for optional contract riders and benefits. Withdrawals and death benefits are subject to income tax. Principal guarantees, lifetime income guarantees, and guaranteed death benefits discussed are backed by the financial strength and claims-paying ability of the issuing insurance company.
At Senior Tax Advisory Group, each one of our seasoned professionals is a vital part of your financial team. Our team has experience in all aspects of financial planning. We have what it takes to provide you with a comprehensive retirement plan. Contact us today to schedule an introductory meeting in this Low-Interest-rate Environment!