Don’t kill me for this question, but I have to ask. Why would you invest in dividend stocks over a fixed index annuity? Seems like a more conservative way to generate income later in life?
Helen Sriubiskis: The quick answer is because stock prices appreciate, thus your net portfolio value increases. Also, dividends grow over time thus increasing your dividend income. Lehigh Acres
Nandy Colon: You beat me to it lol
Lee Onardo: But wouldn’t an index annuity also increase your initial investment assuming the market does not take a dive?
Helen Sriubiskis: I cannot comment on annuities since I don’t follow them What index does yours track?
Lee Onardo: I haven’t looked at specific products, but this caught my eye:Stock Market-Based Yields…See more
Indexed Annuity
investopedia.com
Helen Sriubiskis: Too complicated for me….Why not just buy the index? ( I mean an S&P 500 ETF.)
David Nelson: Lehigh Acres fixed annuities only pay you a portion of the gains. For example, many of them have a cap of 5%, anything over a 5% gain you miss out on, in exchange for not losing your principal
Lee Onardo: David Nelson that’s a big draw back. Thanks for clarifying that.
David Sami Martinez Joseph: When do they appreciate
Kevin Huang: Both your downside and upside are limited. It is a safe route to take if you’re conservative but think about it this way, why do people invest in the stock market? Because throughout history, it goes up. Your potential downside is your portfolio going to 0 while your upside is technically endless. With an annuity, you’ll be limiting your overall potential. And that’s not factoring in any fees which goes along the annuities.
Bob Southard: Big issue with annuities — fees. Buying dividend stocks is in no way comparable to the fees annuities charge. Plus, annuities are just very different products. Usually with one, you pay (fees) for some guarantees that are not there with stocks. If that appeals more to you, then it is your choice. Not mine though.
Dennis Fuller: Main reason , who ever sets up your annuity will charge 7-8 percent right off the top.. So if you give them 100,000 it will be 92,000 when it starts .. And then yearly fees ..
Ray James: That assumes some things BUT generally the contract buyer will be stuck and never see what the agent gets paid, which could be anything–could be a large , up-front fee or an annual “trail” of 1% or more or anything in between.If you go with a contract that has stiff early withdrawal penalties it is to cover the commission and payout assumptions that the company pays to the agent. (largely, not completely).
Bucky Gilbert: It’s fairly simple. The only way an insurance company can make money off selling you this product is if your investment can be used to generate a higher ROI than what they are paying you. They limit both the upside and downside. A good example would be to compare your cap rate under the annuity. If you have a cap rate of 7% and the market goes up 25%, you only get 7 and they keep the rest.
Dennis Fuller: If you are looking to see how you can save on taxes , or other ways to invest then you can get some ideas here. Like do you have a ROTH IRA ? A 401K ? What are you taking advantage of and what areas can you add for additional deductions or less in taxes when you do retire.
Tecunseh Amos: Because of it’s limited life contract… you get a payout but once it’s over, it’s over. Stocks can be given to your children…also if you need cash you get spanked for early withdraw. Where selling stocks you only eliminate what you need.Most annuities are lump sum payments meaning you have to have a lump sum upfront or a smaller lump sum and payments.The most important is it is a contract with a single company…if something happens to that company you may not be paid
Joel Shankster: It is my understanding that with an annuity, you don’t expect to ever see your principal back. So unlike stocks, you couldn’t pass on to your kids or others. I could be wrong, but my general understanding.
Chuck Parrish Jr: https://youtu.be/o8pEE6XTLV4
Ken Fisher Hates Annuities (Intelligent Investing With Steve Forbes)
youtube.com
Phuong Tran: You beat me to it. Lol
Joel Shankster: I see his commercial way too much on CNBC. Lol
Chuck Parrish Jr: Joel Shankster that’s why I went and found it. lol
Bob Southard: Another point… Ask them to show the actual returns on your investment, after fees, by year for the last, say, 10 and 20 years. Look at that and decide if meets your needs. If they can’t produce that data, walk away. They often find reasons why the data just doesn’t exist… new product, product changes, etc. Note that they could always analyze the produce AS IF it existed 20 years ago. In general, they aren’t always very proud of their performance.
Ray James: The problem with annuity products (variable, fixed and index–and I suppose any “hybrid” products that may exist now or in the future) is that you are giving away flexibility in exchange for the promise of security from a company that intends to make a fair amount of money from you. Fees tend not to be transparent (and in the case of fixed annuities, not even disclosed because of the nature of the contract). They are also quite high. You could probably invest in a bond ladder or a portfolio of dividend stocks and apart from the fees associated with your account (statement fees, commissions, potential “advisory” fees–which should be avoided in a buy and hold scenario, etc) you would be in similar shape to buying an annuity. There is risk in everything you will do. If you take out more than your interest/dividend stream, you risk running out of money. You also have market risk. If you trust an insurance company, you have risk there because they will limit your upside participation–indeed with some types of contracts there is no “upside”– take weighty fees and give you assurances.Having said that: Jesse Livermore, the greatest stock trader of all time decided to take out an annuity because he had made and lost several fortunes in the stock market and he “never wanted to be broke again.”
Bucky Gilbert: IfYou want to make money with annuities sell them don’t buy them.
Ray James: Bucky Gilbert drops the mic!
David Sami Martinez Joseph: how
Kitty Wilson Pingston: Annuities are mutual funds wrapped by an insurance policy. Most don’t average as much as the 10% the market does. They also charge 8 to 10% of your money in fees when you buy an annuity and yearly fees. Don’t waste your money!