Variable Annuities

Variable annuities sales in 2010 were over $162 billion. The attraction of investing and deferring taxation on the growth in these contracts remains the main attraction. The challenge for many investors has come relative to managing the assets within the contract. Because there is a need to learn more and become better at maximizing the benefits of these contracts we have created the Perfect Variable Annuity Model. The goal was to provide a strategy to manage the assets based a defined investment strategy to achieve manageable growth.

The first step, find an annuity that puts control of the investment process back in your hands as an investor. What does that mean? Simply put, you have enough investment options that you can design a passive or active management strategy for investing. The more active approach would allow enough flexibility to trade frequently without penalties or fees from the provider. If you wanted to you could trade everyday. However, it would also give you the choice to put together an asset allocation model and be passive should you choose to do so. You could manage part active and part passive within one annuity contract if chose to do so. The key is flexibility with the investment process regardless of your management style.

The second, find the perfect annuity product that has a flat fee, no loads, no surrender charges, no trading penalties and is 100% liquid should you need to access the money. Too good to be true? Not really, the products exists for investors who understand and want an annuity that offers them the opportunity to manage their money for growth on a tax-deferred basis.

What about the guarantees of an annuity contract? That is where the challenge comes for annuity investors. Variable annuities in their original design were built to offer investors the option to invest in the equity markets and accept the risk of doing so, and still enjoy the tax-deferred benefits. Then where did all the riders come from? Market volatility is the easy answer. Remember, part of the design was market participation, and the more volatile markets became the more investors wanted some guarantees. They started with a guaranteed death benefit, then guaranteed minimum accumulation benefits and guaranteed minimum withdrawal benefits. The latest design features have introduced a guaranteed income benefit. All together they are called guaranteed living benefits. Are they bad? That is for the investor to decide, but the challenge comes in understanding how they work and what they cost. What impact do they have to the contract, and in the end are they really worth the cost? Again, the investor has to decide. Do your homework before jumping in too deep.

Our mission is to manage the assets within the contract to achieve the best possible result while managing the risk associated with the markets. The reason investors want guarantees are simple, they don’t trust the market. You only have to look at the last 12 years to glean a clear understand of market risk. In truth most people who put money into the equity markets don’t fully understand or appreciate the level of risk associated with such investments. Therefore, before you put money into a variable annuity evaluate and determine if it is the right investment for you. If not, put your money in a fixed deferred annuity with all the guarantees that will allow you to sleep at night. Don’t force yourself to invest in a variable annuity or equity driven product. Put your money where you can sleep without worry.

If you have an variable annuity contract and would like to follow along with our model, you are welcome to do so. If you need help or want to learn more about exactly what you have, and how to manage the contract, you can fill out our questionnaire, fax us your statement 321-255-5992, or call 800-369-5759 and we will be glad to help.

Investing is a process of learning, discipline and a defined strategy to achieve your objectives. At Sector Exchange we have invested 30 years in helping, teaching and managing money, so feel free to lean on our experience to help you achieve your goals.