Written By: Jeremy Smith / Amerishield
Annuities are contracts, not investments. There’s an important difference between the two:
Investments involve risk. When you buy stocks or mutual funds, for example, you face the chance that the prices of your stock or of all stocks will raise or fall. When you buy bonds, you face the risk that interest rates may rise and reduce the sale price of your bonds. In fact, investors actively seek investment risks in order to get rewards.
Contracts involve the transfer of risk from you to another party. When people buy fixed or fixed indexed annuities, they buy guarantees that transfer the risk of losing money to an insurance company. These annuity buyers actively seek to limit their investment risk.
These types of annuities permit financial risk and reduce it at the same time. This may add to the public confusion about annuities. But that’s precisely why people buy annuity contracts, to control risk rather than avoiding it altogether. This is why many people have allocated part of their retirement savings in guaranteed safe fixed and/or fixed indexed annuities. Talk with your retirement planner to learn more about protecting your retirement savings.