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Guaranteed InvestmentsI keep hearing from Clients that they want investments that have a reasonable return and are guaranteed in that they will never lose money.  In essence they want to know if there is such a thing as guaranteed investments.

I would say the simple answer to this is no.  However, there are fixed annuity products that are available that have options that allow you to buy an annuity, have a minimum amount the annuity increases in value and have the ability to take a certain amount of money out every year for your entire life.

In some respects this looks and acts like a guaranteed investment.  While it is not a guaranteed investment, it is an investment that has contractual guarantees that your income base will increase in value and when it’s time to take money out, and you will get an income stream that you won’t outlive.

This guarantee is a completely separate thing from the investment itself.  The actual investment can go up and down like any other investment.  If you want to take money out of the annuity before you start drawing a regular income you can, but taking money out will decrease the value of the income stream.

After you start taking a regular payment from the annuity the underlying investment can go down.  This means if you want to cash out for some reason, the amount of money you might get would be less and in some cases much less than you invested.

There really is no such thing as a guaranteed investment.  But, fixed annuities can often look and feel like an investment that is a guaranteed.  For some this is a great thing and for others it doesn’t fit the bill. 

The real issue around an  annuity with income guarantees is, what are your needs?  In many instances investment managers and financial advisors use annuities for those who don’t have a traditional defined benefit retirement program.  And for this purpose, annuities can be the right investment to have for some individuals.

Like everything else in the investment world the answer to the question “Is this a good thing?” should be answered with “It depends.”  I think having a conversation with your financial advisor about this idea is useful, but it’s not a slam-dunk that you should run out and invest your money in an annuity. Remember, it depends.

As always, I’m interested in your thoughts about the topic(s) mention in this article.  If you have any questions or comments, please contact me at Jpatrick@stage2planning.com

Josh Patrick

© 2010 Stage 2 Planning Partners. All rights reserved.

This article discusses fixed insurance products only. Taking withdrawals in excess of the annual allotted amount by the carrier can decrease the total amount guaranteed and the value of future annual payments. As with any annuity, withdrawals of earnings are subject to ordinary income tax, and if taken prior to age 59 ½ may incur a 10% IRS penalty tax. Withdrawal charges apply to withdrawals taken in excess of the withdrawal amount available without a charge during the surrender charge period. All withdrawals reduce the death benefit and optional benefits. The guarantees are backed by the claims-paying ability of the issuer.

Securities and Investment Advisory Services offered through NFP Securities, Inc. (NFPSI), Member FINRA/SIPC. Stage 2 Planning Partners and NFPSI are not affiliated. This article is published on a site for residents of the United States only.  Registered Representatives and Investment Adviser Representatives of NFP Securities, Inc. may only conduct business with residents of the states and jurisdictions in which they are properly registered.  Therefore, a response to a request for information may be delayed. Not all of the products and services referenced on this site are available in every state and through every representative or advisor listed.  NFP Securities, Inc. does not provide tax or legal advice.  Any decisions whether to implement these ideas should be made by the client in consultation with professional financial, tax, and legal counsel. Asset protection plans should be developed and implemented well before problems arise. Due to the fraudulent transfer laws, asset transfers that occur close in proximity to the filing of a lawsuit or bankruptcy can be interpreted by the court as a fraudulent transfer. Proper structuring of these assets imperative please seek proper legal and tax advice prior to engaging in re-titling/structuring of any assets. Please note that laws are subject to change and can have an impact on your asset protection strategy. 

Topics: wealth management, investment management, annuities, alternative investments

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