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I am looking for advice on some particular investment options and questions to ask a financial advisor who is recommending them. In particular the pros and more importantly the cons of annuities and of managed investments versus a self managed approach.

“Stop playing poker and believe you have enough to live on”, is what Mr. Advisor said. Followed quickly by, give me all of your money and I’ll give you income for life – actually two lives, my wife’s and mine. She is 50 and I own up to being 62.

This financial advisor’s goal is to preserve assets and ‘beat zero’. He follows a conservative approach built around Fixed Index Annuities and Managed Equity Funds.

The annuities are from Aviva (7% bonus, fees 0.75%) and Security Benefit Life (7% bonus, fees 0.95%).

The managed funds would be run by Fidelity Institutional (Global Financial Private Capital -Moderate Growth with Income: fees 1.65%) and Trust Company of America (Capital Management Group’s Core Equity All Asset Strategy: fees 2.5%).

The approximate proportions are 30% in the annuities, 60% equity funds and the remaining 10% in cash and equivalents.

The promised or at least projected returns net of fees are 4% for equities and for the annuities. According to the prospectuses the historical returns do seem impressive, with many of the strategies returning positive numbers for 2008. The annual income at 4% would provide far more than I predict to need. The safe or guaranteed part in the annuities would provide about 16% and cover some of our basic needs.

Having written all of this it would seem that I should just follow my instincts.
Maintaining a 60% balance of Bond funds and equivalents and 40% mixed equities should allow for a 4% withdrawal and provide a similar annual income. Perhaps adding some sort of fixed annuity to provide some basic guaranteed income as a safety net.

I am willing to accept moderate risks, but as retirement looms in a year or so, I am beginning to feel a little more risk averse. It comes down to confidence in myself to do the right thing against giving control to others.

I’ll be happy to hear what questions I should pose at my next meeting but any other advice and reassurances would also be welcomed.

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