'Safe' Investments - How Risky Are They? Commentary on July 14, 2009 CBS MarketWatch.com program

As published at CaliforniaAnnuityFAQ.

In a recent CBS MarketWatch program entitled - 'Safe' Investments - How Risky Are They? - editor-at large Jill Schlesinger promulgated at least four ideas about fixed indexed annuities that are either misinformed or entirely disengenuous. Let's consider at least four points that were made in this program and learn whether they are FACT or FICTION.

#1 - According to Ms. Schlesinger, "if it (the market) goes down, well, you won't get hurt as badly (with a fixed indexed annuity)."

This is a FICTION. In reality, if the market goes down, you won't get hurt at all with a fixed indexed annuity.

Fixed annuities pay a stated amount of interest, much like a bank CD, and are entirely unaffected by the market. Fixed indexed annuities do participate in market gains through indexed returns, still the worst case scenario is that one earns nothing at all - zero. So when markets dip or freefall as they have in 2008 and 2009, not one penny of investment principal is lost in a fixed indexed annuity. In fact, this is perhaps the most important features of fixed indexed annuities - SAFETY OF PRINCIPAL.

#2 - Ms. Schlesinger also said that annuities have "a big cost, huge cost - two to three times more expensive than mutual funds."

This, too, is a FICTION. In reality, fixed indexed annuities are much cheaper than their mutual fund counterparts.

This statement truly comes out of left field, or maybe even further. To begin with there, there are no sales fees incurred by an investor when purchasing a fixed or indexed annuity. Sales commissions are paid separately by the insurer and 100% of the premium deposited into an annuity goes to work on Day 1 the policy is in force. There are no up-front or back-end loads, no 12-b-1 marketing fees, account fees, investment management or wrap fees as are typical of securities products. Given the churning, reallocation, capital gains and myriads of fees associated with securities products, their managers, and their advisors, fixed indexed annuities provide a much less expensive alternative to mutual funds.

#3 - Ms Schlesingler stated that with an annuity "your money has to stay in this investment until your 59 1/2" and "if you need your money before then, there is a massive penalty".

There is some truth to this statement, but when considering an annuity as a stand-alone solution, this statement is also a FICTION.

Look, if an annuity is held within a qualified account like an IRA or a 401k then, yes, one may not access either the account principal or growth until age 59 1/2 without substantial penalties and income tax - but this is true for any qualified money whether it's held in cash, stocks, bonds or any other investment.

On the other hand, if an annuity is not held within a qualified account, there is complete access to all of the principal and growth at the end of the contract term. And this is true whether you are 30, 40, or 50 years old. Of course, since the earnings within an annuity are tax deferred, taxes on the gains must be paid when they are withdrawn. Still you will have access to your money regardless of your age.

#4 - Lastly, Ms. Schlesinger states correctly that "most people are investing for the long term," but then adds, "but you want access to it (your money) if you need it. This (an annuity) will not give you any access to your money."

This last statement is also a complete FICTION. Annuities do provide for access to a portion of the invested principal.

To be sure, annuities are not liquid like a savings or money market account. Never the less, almost all annuities provide for an annual free surrender - an amount the policy holder may withdraw without penalty. This surrender often equals 10% or more of the initial premium invested or more.

Furthermore, many insurers now offer a Return of Premium feature. In exchange for a slightly lower rate of return, this provides the policy holder with access to all of the investment prinicipal at any time and without any penalty.

Let's be clear - fixed indexed annuities are not a silver bullet solution for all investment needs, never the less they should be considered a part of a comprehensive retirement strategy. And remember, annuities offer several key features that qualify them as truly "safe money" investments:

• Guarantee of principal
• Tax deferral
• Guaranteed income that one may never outlive

How To Safely Weather Today's Unprecedented Market Volatility Without Losing Your Shirt To A Bear

“For Stocks, Worst Single Day Drop in Two Decades”

This headline from the New York Times on September 29, 2008 well illustrates the parade of bad reports that have dominated the news over the past year.

Stocks. Bonds. Mutual funds. Even real estate. All of these investments have suffered from the negative effects of the current economic debacle. Unlike any recession before, there has been no true safe shelter. As a result, there is now a “flight to safety” as investors and retirees return to a more balanced and conservative investment approach.

Imagine that! Investing for the long-term while protecting your hard-earned money and retirement savings. Sounds like a good idea, but where do you actually go to put your “safe money”?

Unfortunately, with the current low interest environment, CDs, money market funds, bonds and other fixed investments hardly pay enough to keep up with inflation. And the diminutive net earnings they do make will probably be consumed by income taxes. Consequently for many today, a safe return often means no return at all!

On the other hand, many others with more appetite for risk and looking for growth have their monies sitting on the sidelines just waiting for a market rebound.

The bottom line is that we all want to have our cake and eat it too, right? We want both SAFETY and GROWTH, but can we really have it all? The surprising answer is YES, WE CAN HAVE IT ALL.

Upside Market Potential & Principal Protection with an Equity Indexed Annuity

Today’s new breed of annuities have risen to the challenge and provide a long needed solution for savvy but cautious investors. Although indexed annuities are not market investments, their returns are tied to market indexes. If the market performs well, your annuity performs well. And if the market tanks (again), your principal is 100% protected from losing even one penny of your hard-earned retirement savings. That’s a WIN-WIN for you, the investor!

So don’t time the market and risk your valuable retirement nest-egg. Instead, take advantage of the market with a principal protected indexed annuity.

PUBLISHED IN THE APRIL 2009 FIDELITYASSURANCE NEWSLETTER