How many times have your clients or prospects told you that they had “researched” indexed annuities? Only later you discover that “research” consisted of typing “indexed annuity” into Google and reading the first couple sentences. As a financial professional who offers indexed annuities in your array of products, you ought to familiarize yourself with Google search engine results related to the product. It doesn’t take long to recognize the negative results.
Indeed, much of the easy-to-access Internet literature about annuities is inherently negative. While I will be the first to admit that annuities have pros and cons, I would strongly challenge many of the popular Google search engine results on indexed annuities. Simply because much of the popular search content compares annuities to market investments, the entire annuity picture is not being presented for the audience.
By design, annuities are conservative investments. At their base level, they are insurance products designed to mitigate risk. An annuity can prevent the insurer from running our of retirement income at the expense of some growth and access. Historically, people have looked at stock market as a means to expand wealth. On the other hand, CDs, bonds, and other fixed investments have been tools used to preserve wealth.
Investors expect to make less of a return on their fixed investments because they have their money protected. No one makes the case that buying a diversified portfolio of CDs will, over time, outperform the stock market. So why is there so much vehement language against annuities? I believe it is the insurance industries own fault.
Insurance companies have been keen to not miss out on the 401(k) investment craze of the last 20 years, and they have added many shiny bells and whistles to their products to increase sales. Who can blame them? The problem is that they have been peddled by many a salesman as the perfect investment. Your money goes up when the market goes up, but you are protected when it goes down. While technically true, it oversimplifies how these tools work. These tools are designed for lifetime income streams through moderate gains and principal protection. Most of them don’t have the same upside potential as a few well-selected equities, and they certainly don’t have the same liquidity. However, this doesn’t mean that they don’t have a place in the portfolio. A better tool does not exist to ensure that you never run out of money as long as you live, and they do have the potential to achieve handsome gains in certain market conditions. Just don’t pretend that an annuity is something that it isn’t.
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