Earl Studio Session part 3: Fixed Index Annuities

Earl E. Bird here with this weeks annuity terminology. As you’ll recall, we’ve already covered variable and fixed annuities in part 1 and 2. Today I bring to you fixed index annuities. After this series you will be filled with useful information that will assist in your investment decisions. My feathers get ruffled each time I think about an American saver making investment decisions with little to no knowledge of the products being offered. That’s why I make it my business to be your investment crusader. If ever in doubt about what products make the most sense for your life, call on your good ole’ friend Earl to answer any questions you may have. This way we’ll all have a happy retirement!

Camilla Cat: And we’re back with Earl E. Bird. So Earl, tell me, what does Fixed Index Annuity or FIA mean?
Earl E. Bird: The word fixed tells us the product has rates and yields similar to a fixed annuity. The term index refers to a stock index like the Dow Jones Industrials and Standard & Poor’s 500.  A FIA offers you a tradeoff – In comparison to fixed annuity owners,  FIA buyers receive lower minimum guarantees for the opportunity to earn a higher yield through market participation.

Camilla: Ok, so how does it work?
Earl: The owner of a FIA has minimum guarantees similar to a fixed annuity. However, a fixed index annuity also offers partial stock market index participation something a fixed annuity does not. So a FIA has the potential to offer a higher yield when markets perform well, which makes this product extremely attractive to some.

Camilla: The concept sounds interesting. Is it too good to be true?
Earl: That’s where the problems occur. Annuity buyers expect stock market returns in bull markets or when the markets perform well. Returns will never compare to equities in a bull market but will protect your principal in a bear market or when the markets are down. Simply said, with FIA’s you can expect fixed annuity type of yields with a stock market “kicker” in positive market years.

Camilla: Do you prefer a fixed annuity or FIA?
Earl: Both products have merit, but I prefer a fixed annuity because it tends to be a more straightforward product. Remember, transparency should be a priority when investing.

Camilla: But a FIA seems to offer so much more. Your thoughts?
Earl: Don’t ever confuse sophistication with better returns. Many products have confusing features that most agents cannot explain. If you don’t understand the product or special feature, walk away. Buy only what you understand.

Pay it forward

First it was Greece and now it’s Italy. What’s next for Europe? I don’t know, but what I do know is that younger investors should keep adding to their 401ks and IRAs. You make your money in bad markets. Buy low, sell high is the very old motto.

Do You Know Your Annuity Products?
Part 1: Varied Annuity    Part 2: Fixed Annuities    Part 3: Fixed Index Annuities    Part 4: Index Annuities

Earl E Bird

I'm Earl E. Bird and I am very concerned about saving for my senior years. I am amazed at the stumbling blocks that exist when saving for retirement. That's why I take my time when making decisions on building my nest egg.

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