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Author: yobria Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 76078  
Subject: Re: Whats wrong with annuities Date: 2/29/2004 9:27 PM
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>>Annuities ..YES or NO

NO! It's impossible to know how good or bad your mother's annuities are- they are complex private contracts that could, for all we know, pay your mom a billion dollars when she turns 72.

But we can generalize. Most annuity contracts are tailored to benefit the insurance company, not the customer. The fees are high whether you see them directly through sales charges, or indirectly, through a low return on your investment.

I can tell you my own experience with my mother's money: after a divorce settlement and the sale of our family home last May, she found herself with a large amount of cash. Fortunately I got to her before the "financial planners" did, and invested her money in low fee Vanguard mutual funds, including their International Index, Small Cap Value, S&P 500, and their REIT and bond funds (she's 10-15 years away from retirement, so a heavy stock allocation is appropriate). Her portfolio has returned 34% since then.

It was critical to get her into a high growth protfolio- even if your investments return 10% per year, inflation and taxes bring that down to 4% or so. Is your mother earning enough from her annuities to outrun taxes and inflation?

Another investment rule is to keep it simple, and never buy anything you don't understand and can't easily research online. Mutual funds, CDs and stocks all fit this criterion. Do your mother's annuities?

Finally, what happens to your mother's principal when she dies? Does it go to you, or the insurance company? If she's giving up her principal, she should demand a much higher rate of return than if she can cash out anytime, as she could with mutual funds.

Nick



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