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By PRWEB
Part 3 of an ongoing series exposing Equity Indexed Annuities. Better
stability investments than EIAs. Mr. Voudrie will identify those investments
and next week talk about better growth investments. “Guarding Your Wealth”
is a nationally syndicated weekly personal finance column written by Jeffrey
D. Voudrie, CFP. Mr. Voudrie is the president of Legacy Planning Group, a
private wealth management firm that employs sophisticated proprietary
strategies designed to protect and grow its clients investments. Please visit
our website, www.guardingyourwealth.com (http://www.guardingyourwealth.com)
to read past articles in our archive.
(PRWEB) January 29 2004--Equity Indexed Annuities: There Are Better
Alternatives (stability)
Every investor would like to increase their income without compromising their
stability. Maybe that’s why Equity Indexed Annuities (EIAs) have become so
popular, because of their promise of providing a stable income stream. But
there are a number of ways that you can easily outperform what an EIA can
deliver. In this article, I’ll show you how to meet your need for stability
and income in your portfolio.
(Mr. Voudrie responds to questions from readers on an almost daily basis. If
you would like clear straightforward unbiased answers to your financial
questions, contact e-mail protected from spam bots)
One of the main sales-points of EIAs is their promise of a stable income
stream. Many nervous investors are comforted by the thought of a guaranteed
minimum return on their investment of 3%, especially in today’s low interest
rate environment. They’re willing to accept this small return, because they
think they are able to participate in the growth of the stock market without
all the risk.
But what these investors have done is confuse objectives with risks. Because
of their fear of losing money in the stock market, they settle for a paltry
return. They’re trying to meet 2 objectives: growth and stability, with the
same investment. How much better it would be for them if they used separate
investments for their different objectives.
Growth and stability investments each have their own set of risks and rewards.
By combining the use of both, the risks balance each other and you get the
rewards of both.
Unfortunately in an EIA, its growth potential is severely limited by caps and
high fees. Next week I’ll discuss how to boost your returns in your growth
investments. Right now, let’s take a look at how easy it is for you to
outperform the guaranteed rates of EIAs.
There are many better alternatives for the stable portion of your money. These
include government guaranteed Certificates of Deposit (CDs), U.S. Treasury
Inflation Indexed Securities (TIPS), government and corporate bonds,
guaranteed investment contracts (GICs), and Real Estate Investment Trusts
(REITs).
These alternatives can provide the stability you are looking for without
forcing you to commit to them for 10 years. More importantly, if anything
happens and you decide you want YOUR money back, you have much greater
flexibility in these alternatives than you would in an EIA. On a CD for
instance, the penalty for taking your money out early is typically a maximum
of 6 months worth of interest. That’s considerably less than the 3+ years
worth of interest penalty on some EIAs.
The rates of return on these stable alternatives are also better then the 3%
offered by an EIA. Three year CDs are being advertised in my local paper pay
just over 3%. TIPs are paying close to that and can increase what they pay as
inflation returns. Government and Corporate bonds historically have averaged
5-6%. Even though they pay less than that today, interest rates are expected
to rise over the next few years. Why would you want to tie your money up long-
term at 3% in an EIA when interest rates are at 40 year lows?
REITs can provide a stable income and are a good alternative. For instance,
many of my clients have invested a portion of their money in a REIT that is
yielding 8.3% and pays the interest monthly. Another is yielding 7%. There
are closed end mutual funds that invest in REITs that regular pay between 5%
and 8%.
Guaranteed Investment Contracts are like Certificates of Deposit but are
offered by insurance companies. They are not FDIC insured but are backed by
the ability of the insurance company to repay the money when due—just like
all the money you would invest in an EIA. GICs from well-established
insurance companies currently pay 3%.
You aren’t required to only choose one of these stable alternatives, either.
Depending on the size of the stable portion of your investment, it could be
divided between several of the alternatives to increase your safety and
flexibility.
The key to having a stable income stream from your investments is to retain
flexibility and control, while also keeping a healthy diversification between
categories, maturities and issuers. As you can see, it isn’t that difficult
to outperform an Equity Indexed Annuity. And you won’t have to lock up your
money in the process.
If you have a specific question or would like more information give me a call
toll-free at 1-877-827-1463 or go to www.guardingyourwealth.com (http://www.
guardingyourwealth.com). You can also reach me by email at e-mail protected
from spam bots. I will be happy to help you in any way I can.
Mr. Voudrie is a Certified Financial Planner and the President of Legacy
Planning Group, Inc., a Private Wealth Management firm in Johnson City, TN.
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