The Motley Fool Discussion Boards
Investing/Strategies / Retirement Investing
|Subject: Re: Equity Indexed Annuities||Date: 7/28/2005 12:43 PM|
|Author: jrr7||Number: 47062 of 76235|
Equity Indexed Annuities are an extremely expensive way for someone to get some of the gains of the stock market and keep most of the risks.
The salesman crows "Your balance at the end of the year is guaranteed to be at least 3% higher than it was at the beginning of the year!" Yes, but he's conveniently neglecting to mention that inflation means that your purchasing power will not go up 3%.
Typically with these products your monthly and annual upside is severely limited, and your downside is not (subject to the guarantee). Suppose you start out with a $10,000 balance. In January the market is up 10% but due to the "monthly cap" you are only up 4%. In February the market is up another 10% (21% total) but due to the monthly cap you're only up 8.2% total. In March the market is up another 10% (33% total) but due to the "annual cap" you're only up 10% total. In April the market drops 11%, it's up 19.8% for the year but you are right back where you started, earning money at a lower rate than a bank CD.
Also, with an EIA, you don't get any of the dividends (the insurance company keeps those).
It's much cheaper to invest in the stock market as normal and just buy put options if you're worried about your investment dropping.
|Copyright 1996-2014 trademark and the "Fool" logo is a trademark of The Motley Fool, Inc. Contact Us|