Variable Annuity Vs Fixed Annuity-Which Is Best?
A lot of people are interested in the variable annuity. Here is some information to help you determine if it would be best for you:
Variable annuities versus fixed
The main difference between the 2 annuities is that the variable allows you to invest in the stock market or mutual funds. On the other hand, the money for fixed annuities can only be placed in safe, guaranteed investments that have a fixed rate of growth. In other words, there is a lot more income potential with the variable annuities, as well as danger of decline.
Variable annuities are great for the educated investor.
Keep in mind that you do get a guaranteed amount of income with variable. However, it is smaller than the fixed annuities. Many people wonder what the difference is between just putting money directly in the stock market versus a variable policy.
The answer is that a small percentage of the money in the annuity is put into a fixed investment, thus guaranteeing you a certain amount of income regardless of how your stock investments do. However, this is only a tiny percentage. In other words, if your investments all go down, you are not going to make as much money as you would with a fixed policy.
A variable policy is almost always your best bet.
Even if you know nothing about investing, you can just put your money in a decent mutual fund and still make more than you would with a fixed annuity-at least if you are investing for the long haul. Short term, your income could go down, but in the long term the stock market almost always outperforms fixed price investments.
Conclusion
The variable annuity is a better option for almost any long term investor. As long as you take a disciplined approach and do not panic if your investments go down temporarily, you will come out ahead in the long run.