Index Annuities

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Jul 8, 2009 10:40 am

Do you guys like index annuities? 

Jul 8, 2009 12:17 pm

Do you like them?  Or do you like them like them?

Jul 8, 2009 12:29 pm

The second one. 

Jul 8, 2009 12:55 pm

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No. I do not like them.


If you had invested $100,000.00 on 01/02/1997 in the S&P Depository Receipts (SPY) and reinvested dividends and capital gains, even with a 1.00% annual fee  your account value would be $209,350.00 on 12/31/2007.


If you had made the same $100,000.00 investment in the Master Dax 5 from allianzlife  you would have $171,460.00



Jul 8, 2009 1:27 pm

Iceco1d:


I agree with you, I am not an annuity fan either. I think annuities are the right investment for some people, I even think EIA are a good thing for some people. I just do not think that they are right  thing for everyone.
JackBlack
Jul 8, 2009 1:30 pm

Jack, nobody here thinks that they are right for everybody.  Regardless of the results, it makes no sense to compare an EIA to SPY.

Jul 8, 2009 1:39 pm

Around 146,000.00 for the SPY i would have to reopen my workstation the exact number.

Jul 8, 2009 1:49 pm

jack, it looks like you've cherry picked your test dates. i was referring to the last 10 years. what happens to the number, in your scenario, if you remove taxes on CG and DIV distributions instead of compounding them into an inflated number? 

Jul 8, 2009 2:12 pm

Fast Eddie:


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No I was using the dates from another thread, the tread on Indexing vs. Active management. I was also assuming that the investment was in an IRA or other tax sheltered account. After tax returns would have been less, if it was a taxable account.


Jul 8, 2009 2:18 pm

I know. That's the thread where I talked about the last 10 years. How much would your example be worth today compared to that same index annuity? 

Jul 8, 2009 2:20 pm
JackBlack:

Around 146,000.00 for the SPY i would have to reopen my workstation the exact number.




...and the annuity would be worth at least $171,000. Thanks for playing.

Jul 8, 2009 4:13 pm

Care to wager which wins the next decade Bobby?

Jul 8, 2009 4:22 pm
Incredible Hulk:

Care to wager which wins the next decade Bobby?

 
Doesn't matter.  All we know is the EIA will lose less.
Jul 8, 2009 4:36 pm

Yes, I've bashed them in the past (primarily the free lunch seminar crooks), but EIAs were NEVER designed to BEAT the market.


They are an alternative to CDs and fixed annuities that afford an investor the opportunity to outperform CDs and FIXED ANNUITIES, and those of you who continue to try and compare EIA returns to stock market returns will continue to lose sales.
 
Wake up!
Jul 8, 2009 4:53 pm

Borker Boy:

Good point.
JackBlack
Jul 8, 2009 5:09 pm
Borker Boy:

Yes, I've bashed them in the past (primarily the free lunch seminar crooks), but EIAs were NEVER designed to BEAT the market.


They are an alternative to CDs and fixed annuities that afford an investor the opportunity to outperform CDs and FIXED ANNUITIES, and those of you who continue to try and compare EIA returns to stock market returns will continue to lose sales.
 
Wake up!
 
BB,
 
The probelm I have is how they're sold by some of ill repute.  They don't talk about caps and participation rates and surrender charges and internal costs.  They weren't designed to beat the market, they were designed to make the insurance companies A LOT of money. 
Jul 8, 2009 5:17 pm
jkl1v1n6:
Borker Boy:

Yes, I've bashed them in the past (primarily the free lunch seminar crooks), but EIAs were NEVER designed to BEAT the market.

They are an alternative to CDs and fixed annuities that afford an investor the opportunity to outperform CDs and FIXED ANNUITIES, and those of you who continue to try and compare EIA returns to stock market returns will continue to lose sales.
 
Wake up!
 
BB,
 
The probelm I have is how they're sold by some of ill repute.  They don't talk about caps and participation rates and surrender charges and internal costs.  They weren't designed to beat the market, they were designed to make the insurance companies A LOT of money. 



When you sell mutual funds do you explain the fact that they can lose at least half of their money in a bear market and that it can take years and years to recover? Do you explain how the returns are impacted by the managers selling winning shares of stock to meet redemption requests, so that they can get their bonuses, based on profitable trades, while they hang onto the losing positions? Do you explain that transaction fees can run up to 1.5% and that these fees don't have to be published in the prospectus and are not included in the expense ratio? Do you explain that they are going to pay taxes on cap gain and dividend distributions and that they will pay more to their accountants who have to keep a running tally on the cost basis?

P.S. Index annuities have no internal fees. That's a nice thing to be able to tell a prospect.

Jul 8, 2009 5:25 pm
Incredible Hulk:

Care to wager which wins the next decade Bobby?




Based on how f***ed up things are and the fact that they will never be returned to their original condition, I'm going with index annuities. I think equities are wonderful for people who don't mind risking their money and who don't care about not losing a penny of principal. In fact, I don't even mind explaining to people that the difference between me and their current broker is that he believes in risking people's money and I don't. If someone wants risk and the ability to lose money, they will hate index annuities.

Thanks for asking.

Jul 8, 2009 10:02 pm

Comparing EIA's to stock investing is apples to oranges. Or apples to steak really.



One does something the other does not.

Jul 8, 2009 10:12 pm
Moraen:

Comparing EIA's to stock investing is apples to oranges. Or apples to steak really.



One does something the other does not.



Very true, but I like how you can take a market average of 12%, discount it 2% since most people don't do as well (I'm being very liberal here), pull out 3% in fees, hit it another 2% for taxes, and end up with a net of 5%. Compared to an indexed annuity, that has no market risk, that will probably do 5-7%.

Note that I really jacked up the market return AND the discount for the typical underperformer, which can be prepared to studies showing that the average investor really only averages 3% or something like that.

Do you think when I show people the math on that, it's easy to close a sale?