Variable Annuity Comparison

We’ve all heard about the amazing growth taking place in developing countries and how the global economy will never be the same again. But countries like China, India and Vietnam seem so far away. It can be hard to understand how those marketplaces can affect the individual investor here in the U.S.A. After my recent trip to Cambodia, I’m here to tell you that emerging markets aren’t some short-lived fad. We’ve only begun to see the impact they will have in the financial markets.

My wife and I had visited Cambodia last March, but this time was different. Besides having our four children along for the experience, the signs of a growing economy were everywhere. Construction was taking place all around Phnom Penh, the nation’s capital. A new 42 story office building had broken ground, the country’s first skyscraper. It’s being financed by a South Korean company. A huge new complex of shops and office buildings were coming up on old rice fields north of town in a special economic zone.

Masses of new apartment buildings were being constructed. The prices of these condo/apartments continue to increase. Those that were $40,000 when construction started are now $100,000. Land values continue to soar exponentially. More people can afford cars. Everyone has a cell phone. Universities and schools teaching everything from nursing to English classes to management and computer skills are popping up on every corner. And the schools are packed.

The city continues to improve its infrastructure with the paving of roads and improvement of their drainage system, which is important during the monsoon season. Internet access is growing, as is the availability of cable television. But there’s much work to be done. Power outages occur almost daily. The municipal water isn’t potable. The sewer system has a very limited reach. There is no mass public transportation service in a city of well over 1 million. There’s little garbage collection.

Just outside of town, the picture is even starker. When you travel out to the provinces, it’s like stepping back in time. Once you get off the main highway, there are no paved roads. Many homes are simple wooden shacks with thatch roofs. Naked children play with sticks in the road next to ditches that are little more than open sewers. Electricity comes from generators that operate a few hours a day. Health care is almost non-existent. The rice grown in the fields hardly supplies enough grain for each family’s yearly needs.

Not all provincial families live in dire poverty. But the majority do. The young people don’t want the same life their parents have. They want more. And they’re willing to work for it. Many of them turn to the garment factories, where by working six to seven days a week, ten to twelve hours a day, they can make $100 a month. In country where unemployment can reach 50%, that’s a nice sum of money. But it’s not much of a life.

Others realize that education is their ticket to a better future. The church we visited and were working with offers free English and computer classes. Over 200 students jam every available room of the building four nights a week. In addition, all of these kids attend either high school or university during the day. Many of them came from the provinces and plan to send money they earn back home to help support their families.

So if you think the emerging markets, is just the latest financial talk point, think again. The story in Cambodia is the same story all over Asia. These people want a better life. They want a higher standard of living. They are becoming educated. Their countries are only beginning to improve their infrastructure. Astute companies from around the world are investing big bucks into these economies. And the growth is only going to increase.

This isn’t a five year fad. It will take decades for these countries to grow into modern nations. But there’s no going back. The young people we met are determined and focused. This generation will do what it takes to succeed.

Your generation worked very hard to achieve financial security. In today’s changing global marketplace, you’ll have to invest smarter in order to maintain it. In next week’s article, I’ll give you practical steps to take advantage of the opportunities these emerging markets provide.

Investing in the stock market is probably one of the riskiest ventures you can delve into with your money.

It is also one of the most profitable undertakings you may make at the same time.

So it’s only normal that you may have reservations about actually trying your luck in the stock market.

The best thing to do is to get a stockbroker to handle your stocks initially. He will be able to give you professional and dependable stocks tips and advice.

It is also a good idea to actually to find a friend or an acquaintance who already has some experience with dabbling in the stock market. They will be able to give you stock tips and advice for free.

One of these advices is which is the worst stock to put your money in.

One of the worst stock moves you can make is with variable annuities using the premium of your insurance.

A variable annuity is an insurance contract that allows you to invest your premium in mutual fund-like investments.

This sounds good in paper, but if you look at it a little harder, you’ll find that they are bad investments in the long run for the following reason:

· Tax cuts. Ordinary investments in stocks and mutual funds qualify for low capital gains treatments, thus smaller taxes. Your gains from investing your premium, on the other hand, get taxed as income as soon as you withdraw the money.

· Early withdrawal penalties. Insurance plans are designed for retirement. Taking out money from your premium entails a certain amount of penalty from both the insurance company as well as the government. So if you withdraw your profits, you will be penalized.

· Death benefit. If your stocks are down upon your death, your beneficiaries can get as much as the investments you put in. Unfortunately, if your stocks are up, they get taxed as a regular income.

· Costs. Annuities with insurance features are actually more expensive than ordinary mutual funds. The more insurance features your annuity has, the more annual feels are heaped against it, which naturally eats up your profits.

There are other stock market investments that are not a good choice to put your money in.

There are specific times as well as when to not to make an investment. Times of natural calamity may drive prices of stocks down but there are no insurance these would recover to make a good profit.

As always, it is best to diversify where and when you put your money in.

Investing in the stock market is probably one of the riskiest ventures you can delve into with your money.

It is also one of the most profitable undertakings you may make at the same time.

So it’s only normal that you may have reservations about actually trying your luck in the stock market.

The best thing to do is to get a stockbroker to handle your stocks initially. He will be able to give you professional and dependable stocks tips and advice.

It is also a good idea to find a friend or an acquaintance who already has some experience with dabbling in the stock market. They will be able to give you stock tips and advice for free.

One of these pieces of advice is which is the worst stock to put your money in.

One of the worst stock moves you can make is with variable annuities using the premium of your insurance.

A variable annuity is an insurance contract that allows you to invest your premium in mutual fund-like investments.

This sounds good in paper, but if you look at it a little harder, you’ll find that they are bad investments in the long run for the following reason:

•    Tax cuts. Ordinary investments in stocks and mutual funds qualify for low capital gains treatments, thus smaller taxes. Your gains from investing your premium, on the other hand, get taxed as income as soon as you withdraw the money.

•    Early withdrawal penalties. Insurance plans are designed for retirement. Taking out money from your premium entails a certain amount of penalty from both the insurance company as well as the government. So if you withdraw your profits, you will be penalized.

•    Death benefit. If your stocks are down upon your death, your beneficiaries can get as much as the investments you put in. Unfortunately, if your stocks are up, they get taxed as a regular income.

•    Costs. Annuities with insurance features are actually more expensive than ordinary mutual funds. The more insurance features your annuity has, the more annual feels are heaped against it, which naturally eats up your profits.

There are other stock market investments that are not a good choice to put your money in.

There are specific times as well as when to not to make an investment. Times of natural calamity may drive prices of stocks down but there are no insurance these would recover to make a good profit.

As always, it is best to diversify where and when you put your money in.

A Bear-Proof Way to Ride the Market

Using equity indexed annuities to eliminate risk to principal.
If you could flip a coin where heads you win and make money and
tails you stay even, would you flip that coin ALL DAY LONG? Me
too! If you have lost money in the past several years, if you
are like most people chances are you haven’t made it back. IF
you could go back to the years that you lost and went backwards
and could exchange those with zeros, just break even, how much
more money would you have today? That is exactly what equity
indexed annuities; also called EIAs can do for you. An EIA is
like insurance to keep you from losing on Wall Street, but
allows you the potential for greater gains than you can achieve
with regular fixed annuities, CD’s, etc. EIAs are also fixed
annuities, but they have the added benefit of allowing you to
link to market indices such as the S&P 500, DJIA, NASDAQ, and
fixed accounts. EIAs pay a percentage of the index fund you
choose as well as a guaranteed minimum. The percentage, called
the participation rate, varies depending on the company that
issues it. One of the main factors of any EIA is the
participation rate. These can range from as low as 30% to as
high as 125%. Another important factor is how the percentage is
calculated. Some use a point to point method, some use monthly
averaging, some use a high water mark method, and some use
annual ratchets or a combination of these. Each one has benefits
for certain persons, we really have to look at each person’s
financial goals and expectations to assess which product will be
right for them. Another important factor to consider are the
fees charged by some companies. These fees can be quite high,
but there are some companies that issue annuities with no fees
at all. These companies replace the fees with a performance cap
above which the company makes its money. The third way that
companies charge is called a spread. For example if you had an
EIA with a spread of 2% and the index return was 12% you would
receive 10%. Equity Index annuities are excellent for an up and
down market like we are in currently. When you combine the
potential for higher returns with the lack of downside risk it
is hard to beat equity-indexed annuities for long term safe
investing which also makes them an excellent place for
retirement accounts, because you know when you get ready to
retire your money will be there. That’s an important feature to
have given what has happened with many 401k’s lately. From 1998
through 2004 these indexed annuities have averaged over 7% per
year, let us visit with you and discuss how they may be
implemented as a very important part of the growth and
preservation of your assets. How much more money would you have
today if you had averaged over 7% the last five years? Safety
and Guarantee of Principal Guarantee of Principal- Premiums
deposited into an equity index annuity are guaranteed never to
go down due to market downturns. No one has ever lost a nickel
due to an insurer going out of business either. Minimum Interest
Guarantee- A minimum amount of interest is credited regardless
of market performance, the rate varies with each company. Power
of Tax Deferral- All annuity values accumulate on a tax-deferred
basis until withdrawn, giving a triple compounding effect due to
interest on principal, interest on interest, and interest on the
amount you don’t have to pay in taxes which allows you to
accumulate more money over a shorter period. This is also the
feature that can help you to reduce or eliminate the taxes on
your Social Security. We can help you with this. Liquidity
Features- All companies allow withdrawal of funds (subject to
applicable surrender charges and IRS penalties), many companies
allow penalty free withdrawals up to 10% per year and some have
clauses which allow access to more in the event of catastrophic
illness. In my practice I have found the liquidity in annuities
more than sufficient since most of my clients who withdraw funds
only take 4-5%. Guarantee of Lifetime Income- Annuities can
provide you with a guaranteed income for a certain period or
even for as long as you live if you choose. With nonqualified
plans, a portion of each income payment is considered return of
premium that is not taxed, thereby reducing the tax liability
from your income payments. This type of payout can also be used
to fund wealth replacement policies, which can be left TAX FREE
to you heirs. This is especially attractive to clients who wish
to leave large IRA’s to their children but are concerned about
the tax burden. Bypass Probate- Like all annuities, EIAs also
bypass probate. This is an important feature to have when
considering the expense and delay of putting an estate through
probate. The average fee is 4-8% and the average time it takes
is over 2 years! Creditor Proof – In the State of Florida
annuities are given protection from creditors according to
Florida Statute 222.14. In this day and age of frivolous
lawsuits it is good to know there is a place you can put assets
that cannot be sued against. According to a Florida Supreme
Court ruling on a case for Dr. Alan Goldenberg in 2001, “the
proceeds of an annuity contract where there is a surrender
penalty are exempt from legal process….” Tax deferred annuities
offer a wide array of benefits, which we have only touched on
here. They can be used to fund retirement accounts such as IRA’s
and SEP’s. Also IRA’s and 401k’s may be rolled over into
annuities without penalty. They can be used to lower the taxes
on one’s social security as we mentioned above, as well as
lowering taxable interest. You may also transfer an annuity you
currently have that is performing poorly or a variable that is
losing money, we may be able to help you so you don’t lose!
Gregg Hall is a senior financial advisor, licensed with the
Florida Department of Financial Services and focusing his
practice in retirement and Estate Planning for seniors. He gives
free seminars to groups and associations as well as working with
the clients of local CPA’s and attorneys. Gregg taught a
financial planning class for seniors at the Fort Walton Beach,
FL campus of UWF for 4 years.

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