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Now that all of you have me obsessed with making sure I have this right and comparing apples to apples...let's begin with the constants:

Assets: \$199,000
Estimated Annual Growth: 6%
Fees: 2.34% (the actual fees of the annuity)

American Express results:
Total Fees: \$38,421.95
Foregone Earnings: \$7,281.09
Total Fees and Foregone earnings: \$45,703.04
Total Assets after 7 years subtracting fees: \$253,519.39

Vanguard results (.3% fees)
Total Fees: \$4,837.59
Foregone Earnings: \$889.12
Total Fees and Foregone earnings: \$5,726.70
Forgone earnings on \$16,000 surrender charge: \$24,058
Total Assets after 7 years subtracting fees: \$269,437.63

Now the following is the calculation for standard Present Value:

FV
PV = -------------
n
(1 + r)

Now if I understand the NPV correctly it would equate to the PV-I where I respresents the Initial Investment...

NPV for the Vanguard is \$183,000...got it.

NPV for Amex more complex as it is in the annuity. Here's where I'm struggling...If I understand correctly using numbers from above, the FV of the Amex example is \$253,519, So using the above equation...

PV = \$168,604

Meaning in order to get \$253,519 in 7 years at 6% interest, I should be starting off with no more that \$168,604...but...

NPV = PV - I
NPV = \$168,604 - \$199,000
NPV = -\$30,395

Since NPV is a negative number, meaning with this investment I'm starting with \$199,000 or \$30k more than I should I should pull out...have I got this right now? Whew...

No. of Recommendations: 1
"Since NPV is a negative number, meaning with this investment I'm starting with \$199,000 or \$30k more than I should I should pull out...have I got this right now?"

Yep, you are on the money. The AMEX deal nets you a return of about 3.52% based on the growth less expenses over 7 years. The Vanguard fund returns 4.42% over the same 7 year period. I would not like either choice. You can do far better than either of these.

Let's assume you just buy SPY (S&P 500) and hold the shares for 7 years. If the market grows at 8%, your \$199,000 will be worth \$341,000 in 7 years. Of course you lose the insurance you gain with an annuity and the fees you give up with Vanguard. In either case you are paying someone else to do the work that an index fund does automatically at much lower fees with no surrender charges...except brokers fees which should be minimal if you have an on-line brokerage.

Now, what I would do is to buy a portfolio of great stocks and hold on for the ride. There is no reason that you should not expect to net far better than 8%. You could pick 10 great companies and buy approximately \$20,000 of each. The dividends would net close to what the AMEX fund is paying you alone. The cap gains are gravy! If you want, you can then either reinvest the dividends to diversify further or you can do an automatic dividend reinvestment in the same stocks at minimal cost. I bet you can beat the market and do the whole thing yourself. But, you will have no one to blame but yourself if the portfolio value goes down. Some folks like the security of having someone else to blame...apparently that is worth something to them even though it is still their own money that is being lost. I prefer to take the responsibility on my own shoulders. It simplifies things greatly to know you have no one else to trust. But, that is just me. Personal responsibility is not for everyone.

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Thanks BuildMWell. You reminded me that I left out some numbers. The \$199,000 in assets is only for the American Express annuity inside of the SEP-IRA(part of the whole "parents burned" thread). The Vanguard account would be a straight SEP-IRA with starting assets of \$183,000 (\$199,000 minus \$16,000 of surrender fees...ouch!) with much lower expenses but ends up better positioned. The 6% was just me being conservative. I'm in complete agreement with you in that I should be able to beat that.

The outcome seems to be the same and I'm tired of them getting ripped off by this "financial advisor". Yeah, they lose the guaranteed 3% on the principal and the death benefit but beating 3% seems like a no brainer to me.

Never thought about the ETF option...thanks for the tip.