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Subject:  Re: Hybrid/Other Annuities Date:  4/18/2014  9:56 AM
Author:  Hawkwin Number:  35261 of 36693

PSA-V currently sells at 21.67 with a quarterly dividend of 33.6 cents per share for a yield of about 6.23% annually. Preferred stocks have no maturity date like your annuity, but the company may choose to buy back your stock after September 2017. If they do, they must pay you $25 per share, so you will make a nice long term capital gain if that should happen, increasing your yield. In my opinion, this is much preferable to an annuity. It will take you 16 years to break even on the annuity and start earning anything, but with this investment, you will already have received $100,000 in dividends after 12 years, and still have your shares of PSA-A which you can sell anytime or continue to hold. You will earn much more money over your lifetime with PSA-V than with the annuity.

PSA looks like a great option, but lets dive into the details of your post a bit.

1. PSA is trading at 21.67. That means that someone that bought it at the issue price of $25 is currently sitting on a 13%+ loss. If such a person needed their principle back, they would lose over 13% of it. There goes two years worth of interest. How long must a person wait before they can be assured of getting their principle back? Can you guarantee a date with PSA-V as to when that will occur? For a person like the OP that is concerned with volatility and losses, do you think PSA-V is protected against such? Is there a death put option with PSA-V? If one were to die, does PSA-V make up the difference to the benes?

2. It will take you 16 years to break even on the annuity and start earning anything

That is not factual. I won't go into all the details here as to why but that is simply not how a deferred annuity with an income rider works.


3. You will earn much more money over your lifetime with PSA-V than with the annuity.

There is no guarantee of such. You cannot even effectively predict such. The underlying investments of a variable annuity determine performance so an annuity invested in something like American Funds or Fidelity Funds has very likely outperform PSA over the last decade, especially when one considers PSA is currently trading at a loss while something like the American Funds Income Fund of America (AMECX) has a conservative ROR of over 7% during the same time (such does not reflect the additional fees the VA would charge which would like reduce the ROR down to about 5% net of fees).

All that being stated, I am a big fan of preferreds. I own some. But, I also sold my index of preferreds last year though because of what a rising interest rate environment does to the principle - as indicated by the share price of PSA-V.

For a conservative investor that is concerned about volatility and losses, I would not recommend a preferred in this interest rate environment. The Duration (how much an investment will lose for every 1% increase in interest rates) is probably pretty high. My guess is that it is about 10 yrs (10%) for PSA-V.
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