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Annuities: Indexed Annuities
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Indexed Annuities: Keep Up With the Market Without Risking Principal The indexed annuity is a hot commodity among investors today. While providing the security and flexibility that are the hallmarks of an annuity, the indexed annuity ... keeps up with the stock market, earning you money when the market rises, but safeguarding your money when it falls through a guaranteed rate of interest. Before you take advantage of an indexed annuity, though, you should learn the basics of how they work by reading this article. You will discover how interest rates are set and maintained, how the annuities are managed, and some of the pitfalls of purchasing this kind of annuity. Indexed annuities are complex, so if you go in with your eyes open, you will reap the greatest reward.
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Equity indexed annuities are probably one of the most complicated investments on the market right now when it comes to figuring out your rate of return. These annuities credit you with interest based on the return of a market index, such as the S&P 500. However, the return is often subject to a “cap� that prevents you from obtaining the actual “high� in the market index and/or the return is based on a “percentage� of the gain of the market index (not the entire gain). Moreover, the issuing companies may be permitted to adjust the “cap� every year or even every month, and dividends from the index gains are often not included in the calculations even though dividends typically make up about 30% or more of the index return.
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Equity indexed annuities are a cross-bred between a fixed and variable annuity. Its returns are usually tied directly to the S&P500. Insurance companies usually offer a minimum guaranteed interest rate that may or not be capped. Returns are directly dependent on the returns of the S&P500.
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Equity indexed annuities ... provide a guarantee on the downside, which is why many investors in equity indexed annuities accept a conservative ceiling on their gains. For individuals who do not want to take any downside risk, equity indexed annuities are one of the best options available.
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These tax-deferred annuities are based on a statistical indicator and are designed to mirror the performance of a common index, such as the S&P 500, Nasdaq or the Russell 1000 Index. By tracking the ups and downs of the benchmark, equity indexed annuities participate in market changes, following their performance.
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If you have any questions about this article concerning equity indexed annuities or any other investment, please contact Joel Ewusiak. In the area of securities and investment litigation, Joel has represented many investors, agents, brokers and broker-dealers in both customer and industry disputes, in matters involving breach of contract, breach of fiduciary duty, misrepresentation and negligent supervision, among several other areas.
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