0

If I have 40% of my portfolio allocated for "secure" investments (such as bonds) are fixed index annuities a reasonable choice to use in this allocation?

3

There are two primary risks of fixed (or fixed but having a moving rate) annuities.

  1. Any fixed insurance product is held on the balance sheet as an asset of the insurance company, and is therefore at risk if the insurance company fails and is unable to pay it back to you. You can mitigate this risk by choosing strong insurance companies.

  2. Annuities (both fixed and variable) are not liquid. You cannot sell them and get your money back. You must fill out paperwork and ask for a withdrawal. Early withdrawals are usually charged a fee.

  3. For indexed annuities, be sure you understand what limits there are to the rate the insurance company can give you. If the S&P 500 makes 25% one year, for example, you're not likely to get a matching rate on the indexed annuity.

| improve this answer | |
  • So if I don't require liquid assets for 10 years, would you consider this a secure investment? – eniacAvenger Feb 8 '15 at 6:37
  • Sure. There's nothing wrong with putting some of your assets into a fixed annuity, especially when you are sure you won't need to surrender it before it matures. I would hope that over 10 years you would also have assets in stocks and/or real estate since 10 years is a good amount of time to ride out any volatility. On indexed annuities, be sure you understand what limits there are to the rate the insurance company can give you. If the S&P 500 makes 25% one year, for example, you're not likely to get a matching rate on the indexed annuity. – Kent A. Feb 8 '15 at 12:50
  • @KentAnderson - Welcome to Money.SE. I edited the answer to include your comment text. Since the Op asked specifically about Indexed Annuities, I thought that paragraph was important to your answer. – JTP - Apologise to Monica Feb 8 '15 at 14:42

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.