Can Index Annuites Beat an Index Fund Over Time?
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Indexed annuities versus mutual funds
You're in or approaching retirement and looking for ways to protect your retirement savings from stock market downturns. Should you consider a fixed indexed annuity? If you're a mutual fund investor, there are some things you should know.
Agreement Their Central Nature
A mutual fund is an investment vehicle whose value fluctuates depending on performance of its underlying securities. An investor who buys shares of a mutual fund is investing, admitting indirectly, in those securities.
Past comparing, an indexed annuity gives you the opportunity to earn interest credits based in part on the upward movement of a stock marketplace index. Just fixed indexed annuities are not stock market investments and do not directly participate in any stock or equity investments.
Participating in Gains
When y'all invest in an individual stock through a mutual fund, the returns generated by that stock directly impact the value of your common fund shares. In essence, the value of your share is tied direct to the combined returns of all of the fund'south underlying securities, minus any fund expenses.
With a fixed indexed annuity, you have the opportunity to allocate your annuity's Accumulated Value to ane or more indexed interest crediting strategies. Interest credits are determined by the performance of an underlying market index, modified by a mechanism that limits the interest credits, like a cap, spread or participation rate.
Avoiding Losses
A mutual fund participates fully in the gains and losses of its underlying investments. More often than not, if those securities collectively gain or lose 20 percent of their value over the year, the value of your mutual fund shares will also gain or lose 20 pct.
On the other hand, a stock-still indexed annuity provides protection from loss due to stock marketplace downturns. While it is possible to earn zilch percent interest in whatsoever given crediting catamenia, you lot cannot earn less than zero.
Accessing Funds
The two products also differ in terms of liquidity. Shares of mutual funds can be bought and sold daily, with some limitations on selling shares soon after they are start purchased every bit a way to deter short-term trading.
Fixed indexed annuities are designed to help you lot achieve long-term savings and income goals. If y'all withdraw more than the free withdrawal amount specified in your contract, the excess withdrawal will be subject to a withdrawal charge and Market Value Adjustment, if applicable. In addition, any withdrawals before historic period 59½ may result in an IRS-mandated early withdrawal penalty.
These two products are different, each with their respective strengths and weaknesses. Your financial professional can help construct a retirement savings plan that uses the best mix of solutions for your personal goals and circumstances.
Source: https://www.athene.com/producer/insights/indexed-annuities-versus-mutual-funds.html
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