Equity-Indexed Annuities: Putting Lipstick On A Pig

Guarding Your Wealth" is a nationally syndicated weekly personal finance column written by Jeffrey D. Voudrie, CFP. Mr. Voudrie is the President of Legacy Planning Group, a private wealth management firm that employs sophisticated proprietary strategies designed to protect and grow its clients' investments. Please visit our website, www.guardingyourwealth.com to read past articles in our archive.

(PRWEB) May 9, 2005 -- Buyers remorse-weve all had it from one time to another. But when it comes to investing your lifes savings, the last thing you want is an investment that you will soon regret. Here are some secrets that can prevent that from happening.

Staying out of the wrong investment in the first place is much easier than trying to get out of one later. Often, the problem is that you arent given all of the information, or its presented using terms that you arent familiar with. Either way, the deck is stacked against you.

When you sit down with the typical commission-based advisor, their job is to sell you something. Theyve been well trained on how to present a product in the best possible light. They know how to handle your every objection. They have a number of closing techniques to persuade you to make an immediate buying decision.

They dont have to have a great product to offer in order to get you to invest. In industry lingo, sometimes advisors have to put some lipstick on that pig." Many times a product isnt accurately portrayed. An investments blemishes can be well hidden by some clever salesmanship.

Heres a real life example. These are phrases pulled from a brochure for a well-known equity indexed annuity: 'Get an immediate gain with a 10% premium bonus.; 'Your principal and bonus are never subject to market risk.; 'Protect your principal and bonus from market loss.; 'Lock in your index and/or interest gains and get your best years growth -- guaranteed!

Sounds like the perfect investment, doesnt it? But when you take the time to drill down through the fine print in the actual annuity contract and decipher all the legalese, you quickly find its a pig-in-a-poke. Although this annuity is a ten year contract, if you take your money out 10 years later you dont get ANY of the promised index gains! If you initially invested $100,000 you are guaranteed to only get $101,457 ten years later! Thats right. You will have made $1,457 after 10 years!

In order to get any market gains, you must annuitize the contract over a 10-year period. If you dont find out about that until the 10th year, you will have to leave your money invested for a 20-year period to get ANY index gains. Even then, you dont get any of the index gains that occurred during the second 10-year period. Its not sounding so good now, is it?

It gets worse. If you ever need more than 5% of your money in a year, you have to pay a stiff surrender penalty to do so, up to 12.5%, plus you lose your bonus. So you can get back less than you invested even after 8 years! Even if you die before the contract is up and your heirs cash out, they are virtually guaranteed to get back less than you put in.

And these are just a few of this investments blemishes. Even if the salesperson mentioned these disadvantages, its done in a way that makes them seem unimportant. Many people have purchased this pig without realizing what they were getting themselves into. Many wont even know until they go to cash it in after 10-years. Since they see the index gains on their statement they believe all is well.

Ive used equity indexed annuities as an example, but the same story can be said about any number of investments. There are no perfect investments! Every investment has advantages and disadvantages.

Dont take what advisors tell you at face value. Do your homework. Research the product on the internet. If its an insurance product like an annuity, make sure you see and read the contract before you invest. If you dont understand it, find someone who is unbiased to help you (not the person trying to sell it to you!). The insurance company will only do what is in the contract regardless of what the agent makes you think the contract says.

Never give into pressure to buy right then. Thats just a sales tactic. Make sure you know how your investment works and how you can get at your money. Doing so may prevent making an investment you will live to regret.

Ill personally answer your financial questions. Go to www.guardingyourwealth.com and click on 'Ask Jeff.

In addition to being a nationally syndicated columnist and Certified Financial Planning Practitioner, Mr. Voudrie provides personal, private money management services to clients nationwide.

Looking for an energetic expert who is passionate about financial and wealth management? Mr. Voudrie is an excellent speaker who will excite and inspire your audience. Mr. Voudrie is available for a limited number of speaking engagements, television appearances and radio talk shows. For booking information, email jeff@guardingyourwealth.com.

Related Articles can be found at www.guardingyourwealth.com under the Guarding Your Wealth Article Archive:

Equity Indexed Annuities: There Are Better Growth Alternatives

Equity Indexed Annuities: There Are Better Alternatives (Stability)

Better Alternatives Than Equity Indexed Annuities

Equity Indexed Annuities: Agents Prey On Unsuspecting

Consumer Alert: Equity Index Annuities

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