Variable Annuities
One of the hottest products on the market is the new variable annuity. These new variable annuities offer a range of add-ons that make the product good for those that want guarantees but also want the protection from inflation that only investing in the stock market can offer.
A variable annuity is a tax sheltered product that has mutual funds on the interior. Unlike traditional mutual funds, there's no taxable incident if you decide to switch money from one fund to another to either maintain a balanced portfolio or take advantage of market conditions.
The new variable annuities also offer other benefits with their funds. When you purchase mutual funds, if you find a better fund from a different fund family, it costs you a fee, called a load, to switch to that fund. Since variable annuities contain funds from many different fund families, that isn't the case. You easily switch, without cost, to the new fund.
Most variable annuities also offer you the option of automatic rebalancing. Financial advisors suggest a balanced portfolio to maintain optimal safety. When you rebalance a portfolio, you sell the fund that grew beyond the allocation percentage and lock in the growth. You also increase the amount in the fund below the allocation. This automatically makes you buy low and sell high, the primary goal in financial planning. Automatic rebalancing means you never have to fuss with your funds and yet maintain the most beneficial balance.
If those two benefits weren't enough, the newer variable annuities offer others that appeal to many people. These are the guarantees you can add to your variable annuity for a small cost.
One of the living benefits allows you to withdraw a specific percentage. Even if the market drops, guarantees you'll always get back the full amount of your principal.
Another living benefit guarantees a minimum percentage of growth, regardless of market conditions. Some of the companies offer a reset option at a specific time. If the reset option is every four years, at the end of the fourth year, if the balance of the policy is higher, the company locks the new amount as the base.
For those that strictly want to use the annuity as a method to transfer funds to another after their death, there are death benefit guarantees too. Most variable annuity companies offer a guarantee that your heirs will at least receive the money you invested, even if the market drops dramatically. Of course, if your annuity had a higher return, your heirs receive the larger amount.
Another guaranteed death benefit offers your heirs a guaranteed return of a stated percentage, no matter what the outcome of the market. If the market rises, they get the increased amount. If the market drops, they receive the guaranteed amount.
No matter what option you choose for your variable annuity, there's one that fits your situation perfectly. Variable annuities are perfect investment vehicles for those that want the growth offered by investing in the stock market but don't want the risk.
