Beware of Annuities

I’ll come right out and say “I’m not a fan of annuities”. They tend to carry high fees, surrender charges, and guarantees that are inferior to alternative investment solutions.

But unfortunately, annuities pay financial professionals a lot of money which is why it’s not uncommon for investment advisors to present them as a primary solution. Example, some annuities pay investment professionals 5% – 8% of the amount invested, so if you invest $200,000 in the annuity, the advisor gets paid $10,000 – $16,000 as soon as you deposit the money to the annuity. Compared to an investment advisor that may be charging you 1% per year to manage your portfolio, and it will take them 5 to 8 years to earn that same amount.

To be fair, there are a few situations where I think annuities make sense and I will share those with you in this article. But in general, I think investors should be very cautious when they are presented with an annuity as a primary investment solution and I will explain why.

Disclosure: Guarantees apply to certain insurance and annuity products (not securities, variable or investment advisory products) and are subject to product terms, exclusions and limitations and the insurer’s claims-paying ability and financial strength. Before investing, consider the investment objectives, risks, charges, and expenses of the annuity and its investment options.

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