In order to determine whether you should invest in stocks, annuities, or both, it is important to understand each component and how they compliment each other in an investment portfolio.
With today’s stock market at an all-time low, some experts would recommend that this is a good opportunity to invest in stocks. The “buy low, sell high” adage may yield positive results if you are willing to invest in the long term.
Conversely, some would also argue that annuities are a safer bet in today’s economy. An annuity is an investment that yields a guaranteed payout. There are two types of annuities: fixed and variable.
In a fixed annuity, a specific amount is invested and payouts are received monthly, quarterly, or annually. The fixed annuity offers a guaranteed payment wherein the principal amount is never lost, even though there may be a decrease in interest.
A variable annuity comprises stocks, bonds, mutual funds, and treasuries. Unlike the fixed annuity, there is a risk there may be some loss of principal due to the fact that the investment covers a wide range of securities.
An investment portfolio, such as a 401K, for example, allows for contributions to be made into the fixed or variable funds, or a combination of both. The fixed annuity may yield a rate of 8.25% whereas a variable annuity may yield five times the rate of a fixed – but again, it is subject to market volatility.
The bottom line is that an investment portfolio that comprises both stocks and annuities do compliment each other. There are many providers who offer what is called “fixed index annuities” that are tied to the stock market index such as Dow Jones and S&P.
There is no question that variable annuities offer long-term growth. However, it is important to research the many providers to ascertain who offers the best combination of these funds.
Whether you decide to invest in stocks or annuities or both, it is recommended that you keep contributing to the investment portfolio. Even though the economy is in a recession, the market will eventually correct itself and the investments you currently own will produce a higher rate of return.
Finally, here is a tip you may find useful. If you have a 401K, change the contribution to the fixed rate fund. When the market begins to rally, you can then opt to change to Variable A or a combination of both.
What are your tips to maximize your returns?