It would be incorrect for anyone to put his money in any investment without doing some research. You need to ensure that you will not loose your principal amount and have an assurance of making some extra money. Therefore, how have fixed annuities been performing in the past and how good are they?
For starters, you need to know how the investment schemes work. They are fixed types of life insurance contracts with some benefits over the common life insurance. In this case, you pay some principal amount and then later, you start receiving periodic payments. Moreover, your principal will earn interest for you. These investments are referred to as fixed because they will assure you of a minimum interest rate, which can change after every year.
Actually, these interest rates will be in the range of between one and three per cent, which is much more than investments in bank CDs or even money markets. What is more, you do not have to stress yourself by strategizing on how to make money from your interest. Your custodian for the fixed annuity will take care of such issues. These fixed rates are usually independent of stock market’s performance. This may be a good thing because predicting how a market will perform is hard and in other situations, it surprises everyone including the expert traders.
However, these annuities have performed much better than stock markets for the last twelve years. However, financial advisors usually point out that for you to make money in these markets, you need to make long-term investments of at least five years ranging up to fifteen years. However, there are occasions during which investments of less than five years but more than two may do better than bank CDs.
Another great reason that should make you invest in these schemes is the absence of taxes on interests earned before your withdrawal time. This means that the money that was supposed to be taxes adds to your principal amount. Actually, after some calculations these deferrals end up being 45% of the taxes earned. This is a lot of money. It is unlikely that you get this advantage from CDs, savings accounts or money accounts.
Irrespective of the insurance firm that you use, you will never loose your principal money. This is despite any poor performance of stock markets. Actually, these market variations are the ones that make insurers to change the assured minimum interest rates for your fixed annuity. This rate holds even when market rates are resulting in losses. However, when markets perform much better than your assured rates, you might not get all the earned money. Financial institutions usually place an upper limit for your interests. Well, this is fair considering that you will still make some money during tough times and you never loss any part of your principal.
Actually, when choosing the insurer whom you will invest in, consider the participation rate. It defines the amount of your principal that will earn interest rates of the improving stock market. Most participation rates will range from about forty per cent to 100%. However, these rates may change after some time but your financial institution will always alert you about these changes.
These advantages are quite impressive and you could be wondering how much you can invest in such annuity schemes. Well, you do not have limits on your investments. This feature is also a very important, which will not be available from other investments
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