subject: Equity Indexed Investments - Stock Based Annuities [print this page] More and more investors are considering investing in equity-indexed investments such as stock-based annuities. Typically, interest in equity-indexed annuities and similar tools shoot up when market conditions are down, with expert findings showing that significant capital is being placed into annuities such as these. Like many insurance products, the viability of the stock-based annuity as a retirement investment depends on why inquiries are high - are investors really buying into these annuities?
Industry data show that the market is favorable towards EIAs and those who invest in them, especially when compared to the direct market for stocks and other relatively riskier assets which are currently volatile and result in low returns for the long run. With "safer" investments generating very low returns, many financial advisors are currently offering EIAs to otherwise traditional investors.
Equity-indexed annuities typically give the investor a guarantee on the safety of his or her principal with set returns, along with the possibility of higher yields when stock market indexes do well - an attractive combination in the past decade's shell-shocked markets. With EIAs, your money won't specifically be used with stocks or bonds, but you'll get promised returns based on how certain stock indexes perform, among other factors. The returns are promised by the insurance provider who backs the contract, although there are other versions of the EIA provided by banks (as CDs or Certificates of Deposit) and brokers - these are also backed by insurers.
Stock or equity-based annuities usually guarantee "annualized" returns between 1%-3%. One downside is that these returns may be guaranteed for the duration of the policy, and not per year. If the policy has been in place for three years while earning 4% annualized profits, you may get zero returns in a year with negative stock index returns. If you're considering buying into stock-based annuities or other equity-based investments, study its minimum returns and know what items are specifically guaranteed.
