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I am retired and have some of my TSA money available to roll over into another investment.I am considering investing in index annuity. The index annuity guarantees the principal. The first year it guarantees 100% of what the S&P 500 Index averages. After that it will pay no less than 50%. The minimum guarantee is about 2 1/2% which is said to limit the loss in a falling stock market. The insurance company invests most of the money in this account in government and corporate bonds.
I would appreciated some input on this kind of investment.
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I am considering investing in index annuity. The index annuity guarantees the principal.
Which principal is being guaranteed? The initial principal, or does it reset every few years to the then current principal value?

The first year it guarantees 100% of what the S&P 500 Index averages.
Nice sales tool.

After that it will pay no less than 50%.
Is this with or without reinvested dividends? How do they determine what rate they will pay? I assume this return is before paying for fees.

The minimum guarantee is about 2 1/2% which is said to limit the loss in a falling stock market.
Why do they have to guarantee your principal if they are guaranteeing a minimum return?

The insurance company invests most of the money in this account in government and corporate bonds.
I'd like to see the quality and yield of those corporate bonds. Are they convertible?

Zev
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Thank you for the time you took to answer my concern. You have raised excellent questions, some of which I will have to call for answers.

The principal does get reset to current principal value.
Dividends and fees were not mentioned by the sales person. Do most annuities have separate fees attached.
I don't know the quality and yield of the bonds.
I really got nothing to fully explain any of this, just a paper to sign and give how much I want to put in.
The major selling point was that I would never lose the principal I invested, which has happened to me with some mutuals.
I will further research before investing. Thanks again.
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The principal does get reset to current principal value.
I assume this is done yearly, otherwise the guarantee doesn't make sense. So you're saying this annuity will return a long-term average of 5 - 8%/year on your money, with 2 1/2%/year guaranteed.

Dividends and fees were not mentioned by the sales person. Do most annuities have separate fees attached.
The return of any stock or stock mutual fund can be calculated in one of two ways, change in share value, or change in share value with any dividends/capital gains reinvested. For the S&P500 index, I believe there is a 2% or 3% yearly difference, on average, between the former and the latter.
Regarding the fees, all annuities have annual fees -- a contract fee, subaccount expense ratio, and mortality charge. All this should be spelled out in paperwork you receive or sign. I wondered if your quoted returns reflected the fees.

I don't know the quality and yield of the bonds.
I wouldn't think that you would care what the insurance company invested your money in, unless your annuities return was tied specifically to that investment.

I really got nothing to fully explain any of this, just a paper to sign and give how much I want to put in.
Danger, Will Robinson, Danger.

The major selling point was that I would never lose the principal I invested, which has happened to me with some mutuals.
Not wanting to lose principal is understandable. Investing in CDs will also solve the problem. When did this happen and what were you invested in? Did you suffer a paper loss, or did you sell and suffer a real loss? For example, I lost money, on paper, in my small-cap investments in the last few years while the S&P has racked up impressive gains.

Finally, what are you trying to achieve with your money?

Zev
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Greetings, Happyjd, and welcome. You wrote:

<<The principal does get reset to current principal value.
Dividends and fees were not mentioned by the sales person. Do most annuities have separate fees attached.
I don't know the quality and yield of the bonds.
I really got nothing to fully explain any of this, just a paper to sign and give how much I want to put in.
The major selling point was that I would never lose the principal I invested, which has happened to me with some mutuals. >>


For further background, you may want to read post number 11725 on this board found at http://boards.fool.com/registered/Message.asp?id=1040013002967001&sort=postdate. It will help explain some of the issues you raised in your two posts on this topic.

Regards..Pixy
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